Weekly Column

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To join or not to join?
Commentary No. 426

If there has been one issue which has bedevilled British Politics since the War, it has been this country’s relationship with the rest of Europe. You would have thought that by now we would have sorted out our problems with mainland Europe. But no we are still ambivalent about the matter. We still love to hate the whole European idea. Any politician who is thought to be guilty of having sympathy with Brussels puts a real blot on his career prospects.

For instance the most formidable candidate to be the Tory’s next chancellor is, everybody knows it, Ken Clarke. But he’s ruled out because he’s tainted with his views on Europe. This, despite the fact that, if he was taken into the Shadow Cabinet he would advance the Tories by an enormous margin.

In consequence the whole issue of whether or not we should join the Euro and adopt it instead of the Pound is viewed against all this prejudice. As this currency issue is of real importance to this country’s economic future, we are going resolutely to put all this prejudice aside as we look at the issue.

When the Euro was created we stayed out. We did so on the grounds that the time wasn’t right. Since then the problem was first kicked into the long grass and then allowed to drift entirely off the political agenda. That on the whole was fine while the Government and the country as a whole enjoyed those classic boom years which suddenly ended 18 months ago. Now we and the rest of the world have entered a phase when all previous assumptions of a financial and economic nature have had to be abandoned. What we’ve got to do now is reassess our fundamental policies anew and judge whether they are the best we can arrive at in this wholly new situation.

Britain will eventually get out of the worst of the present crisis. The question then is how will the country fair in the global situation which will follow this crisis. What changes do we need to make to prosper in the new situation?

There seems to be a general agreement amongst economists that Britain will need to change the way it goes about earning its living. To sum up this change we could say we will need to consume less, save more, and work more effectively. That should result in importing less and exporting more. If we do that we should clear our balance of payments deficit. Secondly we will need to get the countries budget and it’s borrowing under control. That will leave us spending a lower proportion of our GDP on public services than is the case today. To achieve all this we will have to become more entrepreneurial, achieve better education outcomes and grow more home skills.

To do all this will require a huge shift in physical and human resources. The question is have we got the right exchange rate to achieve this? Fortunately not being in the Euro so far, has allowed the Pound to sink in value. The change has been remarkable. The Pound has lost roughly a quarter of its value in the last few months. This has had an immediate effect. Imports have suddenly got much more expensive. Holidays abroad are going to cost much more, exports should rise but they haven’t and the reason for that is that British overseas customers have been hit by the credit crunch just like we have. Nobody is buying more at the moment. But the time will come when the world emerges from the credit crunch crisis and British exports at a quarter off their former price are bound to recover.

None of this would have been possible had the Pound been in the Euro. But what about the future? We’ve got to treat the question of membership of the Euro on purely practical grounds. What suits us best? The answer until now has been quite correctly to remain outside the Euro system. But now as we concentrate on the next decade this has surely to change. The world has changed. We need to change. We need to be in the Euro now. Why?

Because this is the way to fix the hugely advantageous rate to which the Pound has fallen. At the new low level it may not seem to be an advantage but this would be wrong. To survive in the new world we need the current advantageous and relatively low currency, particularly if we are to make those adjustments to the British economy without which we will go down to perdition. If we can put the Pound into the Euro on the basis of parity we will lock in the present favourable position. That’s what we need to do. Circumstances have played into our hand. We need to seize the chance.

Tony Rudd

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