Friday, January 02, 2009

Join the Euro - No Chance.

Lots of talk around at present about the UK jettisoning Sterling as its independent currency, and becoming the 17th country to sign up to the Euro. Its the dominant story in today's Western Mail. For some reason that I cannot fathom, the massive devaluation in Sterling over the last few weeks is being presented as making a case for joining the Euro. Seems to me that it does the opposite. The consequences for employment and business of our not having been able to to allow Sterling to collapse over recent weeks are to awful to contemplate. Because our Government has made such a 'pig's ear' of managing the economy and its public borrowing has gone so far through the roof, and near zero interest rates have become necessary, a collapse in its currency was the only option left to create an economic environment where some recovery might be possible. No 1 son works in Cork, and he tells me that problems there are even worse than than the UK, but the Irish Governement is powerless to take the sort of action being taken in Britain. I'm told that the same applies to Spain, Portugal, Italy and Greece. All these amateur 'economists' are scribbling about the success of the Euro, it having reached its tenth birthday, at the very time its future is looking doubtful.

Anyway, back to the many words of Aled Blake in the WM today. Lets see who he's wheeled out to fly the Euro's flag. First cheerleader up is Jose Manuel Barroso, the EU President. Well, that's a surprise. Next is Charles Kennedy, who has always been fully signed up. Then its Lord Mandelson, still on a mega- EU pension, followed by the still not ennobled Dafydd Wigley, another long term enthusiast. And finally, we have Mike German, who's been banging on about the Euro for as long as I can remember. There is also support from a representative of the EEF in Wales (Engineering Employers Federation). And that's it. The article could have been written any time in the last ten years.

Truth is that the prospect of the UK joining the Euro has never been further from reality. Opinion polls have the opposition to joining flying high, and William Hague is reported as telling us that a Conservative Government will never agree to the scrapping of Sterling. The best contribution on the subject in today's paper was from Plaid Cymru MP, Adam Price, who dismissed the whole thing as "economic madness". Well said Adam.


Anonymous said...

Brilliant logic, Glyn. The Irish, Spanish, Portugese, Italians and Greeks would all WANT to "allow [their currencies] to collapse"

... but the UK has SUCCESSFULLY allowed the pound to collapse!

Some success!

I think you'll find these and all the other Eurozone countries will weather the storm far better because they share a stronger, more stable currency.

True, now would definitely not be the right time to join. We're in too much of a mess. But the knowledge that we would not have got into this mess in the first place if the government was more restrained from playing fast and lose with the economy will stick.

Anonymous said...

Lets face facts Glyn, we've missed the boat!

Have a look at Peter Black's blog on the subject, photo courtesy of moi.

Glyn Davies said...

Anon - Any Government which mismanages its economy will know that confidence in its currency will fall - which creates an opportunity to export, and attract tourism - and an opportunity to rebuild its economy. This is what happened after Britain left the ERM in the early 90s. I've read that the strains in Greece are already leading to violence.

I did not want to see Sterling collapse as it has done, but its the inevitable consequence of the Government's economic mismanagement, which is heading for bankrupcy.

And you make a fair point about the discipline that would have applied if the UK had been part of the Eurozone. Labour would not have been free to govern as it has. The reason that the Italian Government was so keen to join was that it did not feel capable of maintaining economic discipline itself. It will be interesting to see what happens in the four Med. countries now. Will the strains of living within the Euro prove to be too great? You also make the point very well that creating a single currency is a long way down the road to creating a single government.

anon 2 - I have never supported the idea of the UK joining the Eurozone. If we had have done so, our interest rates would have been lower when the Brown lending extravaganza was in full swing, and much higher now as we attempt to repair the damage that it did.

Anonymous said...

Of course we should have embraced the euro - it was econmic madness not to. Being silly and sentimental about the pound being the symbol of Britishness (which was what was behind William Hague's campaign against it)was absurd. Now look - the euro is worth the same as the pound, so we might just as well have joined in the first place and maybe we would not be in quite the same mess as we are in now.

Glyn Davies said...

Anon - You are entitled to your opinion - but don't assume that those of us who have always opposed joining a single European currency do so because of an emotional attachment. The reason we are in a mess now as you put it, is because of a failure of Government.

Anonymous said...

I concur with Glyn's economic analysis. Partly because of government borrowing; but IMHO more because of the historic penchant for home ownership in the UK (and Eire), our economies are far more responsive to seizures in the credit markets than many of our continental neighbours, whose currency is run from Frankfurt - supposedly in the interests of the whole area, but with a very teutonic imperative to focus rigidly on targeting inflation. The MPC by contrast (especially with a green light signalled by ministers) does have the capacity in extremis to slash interest rates, let sterling slide and lay the ground for an eventual export led recovery as followed white wednesday.

The government will need to be very careful about how it unwinds the positions it has taken, and will need to guard against the inflationary consequences of over-prolonging the stimulus. However the point of liberal democratic government is not to be overbearing in normal conditions, but to be capable of handling crises. To enable them to do so they need access to all the tools in the box, of which fiscal policy is one.