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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.
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