"If we were deciding to join the euro, we would have a referendum. " Declaration by the Leader of the Labour party and Prime Minister of the United Kingdom , Wednesday 17 October 2007.
Treasure it.
(There are, as musicians say, one or two corners). You do not decide to join the Euro, Brown: you decide to apply to join the Euro and, apart from just promising a referendum on a decision to abandon the Pound, presumably using your own criteria for if the UK economy can face (never mind meet) your five tests:
1 Are business cycles and economic structures compatible with Eurozone interest rates on a permanent basis?
2 If problems emerge, is there sufficient flexibility to deal with them?
3 Would joining the euro create better conditions for firms making long-term decisions to invest in Britain?
4 What impact would entry into the euro have on the UK's financial services industry?
5 Would joining the euro promote higher growth, stability and a lasting increase in jobs?
which were total Balls when first set out, but are now, after the monumental mess made in the last 10 years, full of heffalump traps for the unwary but arrogant non-economist; but you might be emboldened to apply.
If you meet the Maastricht criteria, which currently the UK economy does not, then you can be admitted. If not , not.
You need to pull your head in.
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8 comments:
The notorious five tests were designed so that their fulfilment or failure to fulfil would be entirely and absolutely a matter of the Chancellor's judgement. This is the case now as it was when they were first vented.
From the viewpoint of the Maastricht treaty, pre-conditions of euro entry are not exceedingly taxing.
First, the UK would have to re-join the Exchange Rate Mechanism that it precipitously left (like Italy) back in 1992. This means 1)agreeing with the EU authorities and the ECB a central exchange rate (no problem, the value of the pound would continue to be validated by market forces); 2) keep the actual exchange rate within a plus or minus 15% band of the central parity for at least two years (easy, the band was 2.25% when the UK was forced to exit and was raised to 15% as a result; Italy and Finland got away with less than two years EMS membership and so could the UK); 3) then agree with the EU authorities an exchange rate for final conversion of quidlets into euros. This is harder because there may be disagreements within the UK and with the EU about the appropriate rate of conversion, and because four additional conditions of fiscal and monetary convergence have to be satisfied before joining the euro..
Fiscal convergence requires a public debt no higher than 60% of GDP (this has been loosely interpreted, so that it did not stop Belgium Italy and Ireland to join at over 100%), and a deficit no higher than 3% (which in theory the UK has to stick to regardless of euro membership by virtue of the so-called Growth and Stability Pact, anyway - except that the constraint is taken seriously only at the point of euro entry).
Monetary convergence requires a long-term interest no higher than 2% over and above the average rate of the three least-inflationary members of the EU (note, not of EMU but of EU, which is silly, but never mind). And a rate of inflation no higher than 1.5% over the average rate of the three least-inflationary members of the EU: equally silly).
These convergence criteria only have to be satisfied in the one year in the run up to the decision whether or not to allow the UK to join. After that - apart for the 3% per cent deficit constraint which is supposed to apply regardless but is leniently applied - the UK can do what it likes, e.g. inflate at her Majesty's pleasure - like Ireland has done since joining the euro. These criteria therefore are not all that hard to satisfy.
After that, the imperial calling of the ECB will welcome the UK into the euro-zone no matter what.
In conclusion, the UK can join the eurozone in no more than two years or so at any time, whenever it wishes, or rather whenever the Leader so wishes.
Yes Caronte, but not if the Eurozone chooses not. Up to now it has welcomed all, it wants to be a reserve currency quite a lot really. If the Leader blots his copybook, in any area of relations with the EU, then an application is always only that - and can be turned down, for real or formal reasons. As Sackerson suggests, there are EU rules and then there is EU application of rules until it gets what it wants. But you are probably right, the EU will take any remotely conforming currency into its maw, so that makes the referendum on applying to join the Euro even more important. Brown knows he would lose such a referendum, just as he and his regime would lose a constitutional referendum, so there's a display of a policy for never entering the Euro for the EU to take into consideration.
Fair enough. The Leader could not have it both ways, join the euro and at the same time distance himself from other aspects of European integration, political and in defence and foreign affairs. So, which way will he jump?
Hats,
Would the treaty be better looked at by people who create money, or people who spend it?
Politicians are usually poor at both.
I must say HG I greatly wish you were here for giving masterclasses. Polly Toynbee was gloating that sheer complexity and obscurity would save the project.
For me its always been simply , do i wish to be rule by foreigners or not . Well 'not' obviously .
This debate was never won and is utterly lost now , hence the proclmations that the Federal Dream is dead. What is required is only reassurance abotu the UK`s economis furture out siede the EU and the last bits of resistant Conservative opiniion will happily
vote down anyhting and everyhting until we reach the blessed state or Norway
S, as people who create wealth are rarely the same people who are arguing and choosing over how to spend it, you really pin it down. (we're talking about entrepreneurship in an advanced capitalist economy here aren't we?)
I'm for the entrepreneurs choosing - after all, they are living proof of their own economic and social competence. The spenders tend to be bureaucrats and/or chippy economic low achievers with an ideology and an agenda.
N,
'sheer complexity and obscurity would save the project.'
I've mentioned before that this is now a standard political manipulative technique. There is a Financial Times columnist, Tanzi, who lays it all out in its perfidy.
We agree there is no means to argue coherently and at length about the origins, purposes and historic drive behind the Federal State of Europe, not least because the Huntsman is clopping quietly through the blogs keeping a tight rein on history of the 20th century with particular reference to: from the 1920s to, so far, the Wilson years. It does so restrict the sweeping statement, the flourish, the telling allusion.
Newmania's Universal Response:
vote down anything and everything until we reach the blessed state or Norway
(literals have been silently corrected, Ed., but 'the blessed state or Norway' is open to fascinating interpretation, Ed., again)
should have universal adhesion (once the blessed state status is made clear).
Slightly gnomic HG but I think I follow you. One of the odd things that informs the non debate is that ,for the vast majority, the idea that pooled sovereignty , was a good in itself, is almost beyond comprehension.
"So you want to be ruled by Poles and French people and so on....eh ?"
"Yes but you also affect their lives .."
" Errr why would I want to do that then .... "
The forces of anti nationalism are quite historical now but well represented in the Establishment watering holes , the BBC, academia , the leftish Political class of course. I suspect that ,like most things, once the encrustacean of jargon is stripped away its a simple matter.
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