Britain and the Euro Apr03

Chancellor Gordon Brown, has stated consistently that the UK needs to meet five economic tests before considering whether it should give up the pound and adopt the Euro. As speculation increases whether tests will be "positive," I have taken place in a major debate along with EU Commissioner Neil Kinnock "Should the UK adopt the Euro?" chaired by David Dimbleby.

 

I argued that contrary to fears that the UK would suffer from being outside the eurozone, we have actually prospered. We have higher growth rates and lower inflation than the eurozone; our take-home pay is higher than every EU country except Luxembourg; we receive the most foreign investment and our unemployment levels are half those of the eurozone's.

 

As for the Five Tests set by the Treasury:

 

Convergence: Despite our higher interest rate, the UK growth rate is higher than the eurozone. The UK has and maintains a lower rate of inflation. The / exchange rate has also fluctuated by almost 30% - far more than the band of 2.5% required to join the Euro.

 

Flexibility: UK unemployment is about half the EU average, despite higher interest rates and higher take home pay because it has a flexible labour market.

 

Investment: The UK attracts substantial foreign inward investment because it offers a pool of skilled labour with lower non-wage costs of employment.

 

Financial Services & the City: The City of London has more Euro deposits and Euro transactions than any other capital of the EU and so we have not lost out by not adopting the Euro as our currency.

 

Employment and Growth: Some eurozone countries (France, Germany & Italy) have breached EU maximum limits for the Growth & Stability Pact. Despite lower interest rates and greater public expenditure, their economies are stagnating.

 

Clearly, any assessment of the UK economy and the Five Economic Tests suggests that we should not join the single currency now. By adopting the Euro we would be forced to have one interest rate which we would be unable to adjust.

 

Being a member of the eurozone would also put us under the constraints of the Stability and Growth Pact which would limit our government's spending on public services. Germany is having to cut 3 billion from its hospitals in order to meet the strict requirements of the Pact. Would we want this to happen to our hospitals across West Suffolk?

 

Signing up to the single currency would mean that we lose control of the exchange rate. Currently, we can ward off recessions by engineering a devaluation of sterling by buying foreign currency to improve our exports.

 

While the benefits of euro membership for Britain are fairly limited, the costs could be quite considerable. At the moment, our economy is out-stripping that of the eurozone. If at any time in the future economic conditions require the UK to reconsider its position, then we must reassess these arguments.