The Time Has Never Been Better to Join the Euro
The influential businessman Peter Sutherland believes there has never been a more perfect time to welcome back to the agenda the divisive topic of joining the Euro. When the case was last investigated and, with the publication of the Treasury’s Report on the Five Tests, effectively terminated, not joining the Euro was the more obvious choice. One wouldn’t be wrong in saying that the case is far from as clear cut perhaps decisively so. A growing array of decisive factors have changed. As it is ever popular to quote Keynes, it is worth bearing in mind the reproof he directed at someone who criticised the apparent inconstancy of his expressed views: “When the facts change I change my mind. What do you do?” First and most important when the case for the Euro was last went over, British citizens could be excused for following the classic Americans saying “If it isn’t broken, don’t fix it”.
This there was no doubt this outlook was correct at the time and was based on a long period of increasing prosperity and moderate inflation. It was mirrored in a long run of predominantly negative answers to the question, as administered by polling organizations, “if there were a referendum on joining the Euro would you answer Yes or No to the question ‘Should Britain join the Euro?’ Few would agree this American adage is appropriate today. Attitudes towards joining the Euro seem in flux.
An integral part in the long run of prosperity was undoubtedly the high value of the exchange rate of the pound against the Euro (as well as other currencies). Once again, things have changed. Where the exchange rate was arguably higher than it should have been before, now it is debatably below the point it should be. It was difficult to recommend committing to the Euro at the rates prevailing in the late ’90s through to 2007 and it would be sensible to await some appreciation before locking in now - but that some fall in the exchange rate can be welcomed is hardly beyond debate. Still, while we are talking about the exchange rate, it is not just banter about whether the rate is correct or not at a particular time that should count. Instead of that, the lesson that should well be learnt is that the recent behaviour of the exchange rate gives barely any ground for optimism about its role as a stabilizer when Britain’s exchange rate is floating. It’s true to say that there have been a number of studies which seem to show that the exchange rate may, for many countries, be as much of a detriment to the economy as it is something which stabilizes it.
