Euro Storm in a Tea Cup

From the recent discussion, you might believe that joining the Euro is the biggest issue Britain has ever faced. From saving our economy to destroying our sovereignty, the claims made are certainly grandiose. Whether pro or anti Euro, commentators all seem to agree that joining the Euro will have a major effect on our economy. But will it really have such a major effect?

What effect joining the Euro will have on our economy depends on whether you believe the pro or anti lobby. Those against the Euro will point out that joining the Euro means that decisions about interest rates will be made in Europe, not in Britain. This, they would have us believe, means that evil European bureaucrats will be able to wreck our economy for their own selfish ends. (It is always worth noting that those who are against the Euro seem to believe that "European" doesn't include the British.) This might seem a convincing argument for those based in London, but from where I sit in central Scotland, it seems largely irrelevant whether the small, unaccountable group of men deciding interest rates is based in London or Brussels. Neither group take much account of my local economy anyway.

Worrying about who sets the interest rates is rather missing the point. UK interest rates are only partially determined by the Bank of England anyway. Both European and American economies and monetary policies have such a dominant effect on our own that there is only a narrow window of possible interest rates for Threadneedle Street to decide between. In the past it may have been possible for British decisions to be the primary effect on the British economy, but centuries of global trade have entwined us so completely with the economies of our near (and indeed distant) neighbours that pretending that Britain controls her own interest rates is naive in the extreme.

The other problem with the anti-Euro case is that interest rates have little effect on the economy anyway. Okay, high interest rates are a problem - bad for inflation, bad for investment. But whether the rate is 1% or 3% makes little real difference. Tax rates, government spending, import-export balances. These are the real determinants of the economy. Introducing a high stamp duty on second homes (whether for holidays or renting) would do more to fight inflation than anything within the Bank of England's power; tax cuts for small businesses have done more to stimulate the economy. British economic performance depends largely on decisions made by Gordon Brown at each budget, and that's the same whether it's done in Euros or Pounds.

On the face of it, the pro-Euro argument is stronger. There are costs involved in doing business in a foreign currency, and many British companies do business in Europe. The problem is that nearly all arguments for joining the Euro could also be made for adopting the Dollar as our primary currency. Certainly, I do as much business with America as I do with Europe, and I encounter exactly the same problems over payments from both. The only major difference is that America has not asked us to join the dollar.

There are benefits to removing exchange barriers to trade - but they apply to all currencies. As we head towards a truly global economy, the free exchange of currency is going to be a barrier the world will need to tackle. At present, exchange rates fluctuate largely due to the pressures of currency speculation, not differences in the relative strengths of the underlying economies. Stopping such speculation would relax the artificial pressures placed on economies, and allow local economies to reach a more natural and sustainable import/export balance. Britain joining the Euro would be a step towards ending currency speculation, but it is a problem that needs to be addressed world-wide, not just within the confines of Western Europe.

The levels of business that Britain is able to perform with America, the Middle East, the Far East without worries of differing currencies, proves that those nay-sayers who claim that not joining the Euro will damage British competitiveness, or the British economy, are over-stating their case. Removing the few percent fees paid to banks in order to allow payments in other currencies would be a convenience for most businesses, but it will only make a real difference for companies that are already in deep financial trouble.

On balance, though, while there is little business upside to joining the Euro, there is even less downside. The control over our economy we would lose is minor and largely illusionary. The lowered costs to some businesses would more than compensate. The only real losers would be the currency speculators, who would simply move their parasitic practices into other arenas. From a macro-economic point of view, the decision to join the Euro is a clear, albeit narrow, yes. It is on the personal and political level where things become more definite.

To the average Briton, still more likely to holiday in Euroland than anywhere else, the benefits of joining the Euro are clear. Forget the nonsense about the Queen's head, or the name Pound. That's the result of tabloid stirring. In reality, the effect of joining the Euro is that we will no longer have to hand five percent of our spending money to the bank for the dubious privilege of being allowed to spend money abroad. That makes Britain a five percent better deal for tourists as well. Tabloid xenophobia aside, within two years of introduction, you'll be hard pressed to find any individual in Britain who wants to change back.

If the business case for the Euro yields a thin yes, and the personal a definite yes, why haven't we joined? Politics. Joining the Euro is a symbol of commitment. Britain still wishes to think of itself as a country with influence. Too many little Englanders still harbour dreams of Empire. But our Empire is gone, and our influence is now consistent with our size. British influence on world affairs now relies on us being part of something larger than we are - something that our successive leaders have realised. The problem comes in choosing where to align ourselves.

America is still a tempting ally. We talk of the special relationship. We talk of our influence in Washington. But we are kidding ourselves. America isn't interested in our partnership - only in our usefulness. Whenever possible, America seeks to play the isolationist game. We won't be allowed to join the dollar. We don't have any influence - Iraq proved that. The special relationship is that of faithful dog and master. America is too secure in its own dominance to listen to us.

If we seek influence in America we must, paradoxically, align ourselves with Europe. Only the EU has the size, political and economic strength to stand alongside America. And in Europe we could be a major player. The domination currently enjoyed by France and Germany could be shared by Britain. All we need to do is choose to take it. That means placing ourselves symbolically at the heart of Europe, and that means joining the Euro.

Ultimately, we aren't part of the Euro so that we can keep open the possibility of a closer alliance with America. Joining the Euro is choosing those tabloid images of weird foreigners that beat us at football over the country we admire that makes movies we enjoy. The problem is that America isn't interested in our dreams of alliance. We will always be largely an irrelevance to America. By continuing to court the aloof beauty, we are rejecting those friends who would welcome us with open arms. We are in danger of choosing subservient irrelevance over genuine influence. At some point we will realise the necessity of choosing Europe. Further delays can serve no purpose.

It's time to join the Euro.

Graham Robinson. 11th June 2003.

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