Opinions on Joining the Euro Are on the Change
The influential businessman Peter Sutherland believes that the time is right to put joining the Euro back on the agenda. 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. It’s an astute observation that the case is far from as clear cut perhaps decisively so. A growing array of critical factors have changed. As this is the time for quoting Keynes, it is worth bearing in mind the reproof he directed at someone who criticised the seeming inconstancy of his expressed views: “When the facts change I change my mind. What do you do?” At the time when the case for the Euro was last rehearsed, British citizens could be excused for following the classic Americans saying “If it isn’t broken, don’t fix it”.
This well-founded attitude was based on a long period of increasing prosperity and moderate inflation. It was reflected in a long run of predominantly negative answers to the question, as posited 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 (and other currencies). Once again, things have changed. Where the exchange rate was debatably higher than it should have been before, now it is debatably too low. It was tricky to recommend committing to the Euro at the rates which were common in the late ’90s through to 2007 and it would be sensible to await some appreciation before fully committing now – but that some fall in the exchange rate can be welcomed is hardly beyond debate. Still, while we are on the subject of the exchange rate, it is not just quibbles about whether the rate is right or not at a particular time that should be important. Instead of that, the lesson that might be learnt is that the behavior of the exchange rate in recent times gives barely any ground for optimism about its role as a stabilizer when Britain’s exchange rate is floating. In fact 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.
