European
Single Currency
Yes, that’s the whole point.
There are no sound economic reasons for introducing European monetary
union and the euro. It has been done for a purely political purpose, i.e. as part
of the process of merging the member countries of the European Union into a new
political super-state. It is
a political project that has been actively pursued by cross-party political
elites across Europe since the end of the World War II.
European politicians are openly frank and honest about this goal, only
British politicians have tried to pretend that the purpose of the European Union
is purely economic.
No. We might have thought that the European Union itself would have commissioned one but incredibly it did not. Although others have made serious attempts to weigh up the advantages and disadvantages of the euro the European Union has simply assumed that a single currency would be beneficial to all the member states. They have never carried out a thorough, objective, and systematic study of the pros and cons.
We should have expected it to
cover the following:
Whether the EMU countries met the basic
requirements widely recognized by economists as being necessary for a
successful single currency area.
An assessment of the history of previous
attempts to create single currency areas among nation states.
A comparison of the costs of introducing a
single currency against the possible benefits to be secured.
An assessment of whether a single currency
would be more or less likely to produce improved economic growth and
improved employment prospects for all member states.
Whether the clear and undisputed benefits
would offset the project's obvious risks.
Since such an assessment has
never been done and we can only assume that this is because there was a strong
possibility that it would come to the wrong conclusions as far as the European
Union was concerned.
Yes, there is one that is
agreed by everyone. The euro would
result in reductions in the cost of changing money from one currency to another
within the euro-zone. However, even
the EU Commission estimates that this benefit amounts to less than 0.5% of
aggregated EU national income, an estimate that most economists regard as being
too high. The slight benefits
of ending currency transaction costs have to be offset against the cost of
introducing the euro. The changes
required have been estimated by the EU at 3% of aggregated EU national income. Thus the changeover at best would have a six-year payback
period, irrespective of any economic costs that might be caused by the euro,
e.g. increased uncompetitiveness, economic recession, or higher unemployment
While the end of currency transaction costs across Europe might seem like an attractive option for tourists, travellers and businesses, it could prove a small and temporary benefit if people were to lose their jobs, and businesses were to close, because of the wider economic disadvantages of monetary union.
Mainly that stated above, that they would no longer have the cost of changing money when they travel to other EMU countries. It has also been argued that the euro will make pricing across Europe more 'transparent', i.e. it will be easier to compare the relative prices of the same goods in different countries, and that this will have the effect of lowering prices as a result of greater competition. However it is very easy now for anyone who wants to, to compare relative prices across Europe against the pound sterling price in the UK. It is inevitable that the same goods will sometimes have different prices across Europe for a variety of reasons: e.g., demand and supply in particular regions, variable labour costs, transport costs, and national direct and indirect taxation rates. This last point is important because the EU wants next to standardize indirect taxation rates across Europe. For Britain this will result in the payment of VAT on many goods and services that are currently zero-rated.
The main benefits are seen as the abolition of the need to pay for currency exchanges, and the removal of exchange rate uncertainty for those companies trying to export to Europe. Managing exchange rate uncertainty is certainly one of the many challenges that face exporters; this is true to whichever part of the world they seek to export. Changes in exchange rates can work for or against exporters depending on how the economy of their own country is faring. Those businesses most vocally in favour of the euro tend to be those multi-national corporations with very large currency transaction costs in Europe. It is natural that they would like to free themselves of this uncertainty and cost. However it has to be remembered that over 80% of businesses in the UK do not export but are domestic producers only. The fact that a relatively small and vocal number of UK businesses are in favour of the euro has to been seen in the light of its perceived personal advantage to them. They are not arguing for the euro on the basis of the overall economic benefits to the UK. Britain has done very well economically since it left the European Exchange Rage Mechanism in 1992 compared to those European countries that embraced the Maastricht convergence criteria in preparation for EMU.
That depends entirely on your
point of view. If you believe that
the creation of a United States of Europe is desirable above all things, and
that the European Single Currency is a vital step on the way to achieving it,
irrespective of any economic disadvantages, costs or risks, then yes there are.
If you believe the EU propaganda that only the EU can ensure peace and
prosperity in Europe then the answer is probably yes again.
If, however you believe that the best way to ensure peace and prosperity
in Europe is through encouraging independent, self-governing democracies then
the answer is no. As a rule
democratic states do not make war on each other, but rather solve their
differences through peaceful diplomacy and negotiation.
During the period after World War II, most countries in Europe already
were, or became democracies. Peace
was kept in Europe, not by the EU but by NATO, which comprised chiefly Great
Britain and the USA. Over the
last three decades the European Union has been hard at work removing the
democratic accountability of its member states governments and replacing it with
rule by decree from Brussels. They
are building a new super-state with all the inherent instability of the former
Yugoslavia. It this concerns you
then there are no political benefits to the euro.
Just about everything.
It is a project driven by political ideology
and not economics.
There have never been convincing economic
arguments for creating European monetary union in the first place.
The savings on transaction costs will be
small compared to the transitional costs of the euro.
There is no evidence that the euro will
produce any significant increase in trade or competition.
There is no evidence that real interests
rates will be lower or investment higher once the euro is in place.
The history of previous attempts to lock
European currencies together, i.e. the Snake and the ERM, has shown that the
risks are high and that the Euro is most likely to produce more deflation,
slow growth and increased unemployment.
The European Union lacks every key
requirement for a single currency area to work.
It does not have reasonably homogenous standards of living and
competitiveness between its regions. It
lacks re-distributive budgets that would enable it to give subsidies to
under-performing areas (not that this would be likely to work anyway). Labour cannot move easily within Europe to seek new
employment because of language, custom and market rigidities.
The European Central Bank is charged with
pursuing purely deflationary policies under the terms of its creation.
National governments will have surrendered effective control of their economies.
Yes. Britain's economy differs radically from those on the continent.
Much more of Britain's trade is done with
countries outside of the European Union than in it.
Britain is a more open economy compared to
her European counterparts. Britain
enjoys more inward investment from the rest of the world as a percentage of
Gross Domestic Product than any other continental economy.
Britain has much more invested outside the EU
than in it, i.e. more than £1.4 trillion.
Britain derives more of her direct investment earnings and income
from Commonwealth and developing countries than from EU countries.
Britain's economy and her business cycles are
much more in tune with those of the USA than Europe.
Britain is a net oil producer whereas all
other EU countries are net oil consumers.
The proportion of home mortgage owners is
much higher in Britain than is general in Europe, and their susceptibility
to suffer from changes in the interest rate is therefore much higher.
Britain's tax levels are considerably lower
than the EU average.
Britain's labour force is much more flexible,
with a substantial competitive advantage. This
is reflected in levels of unemployment that are much lower than those on the
continent.
All of these advantages are at
risk if Britain joins the euro and hands over control of her currency and
monetary policy to the European Central Bank.
Look at the continent to see.
Countries like Germany and France have been preparing for years to get
their economies ready for monetary union. This
meant sticking rigidly to the so called 'convergence criteria' laid down in the
1992 Treaty on European Union (Maastricht).
These criteria covered levels of inflation, budget deficit, exchange
rates and interest rates.
Article 105 of the Treaty
states clearly in item 1) 'The primary objective of the ECB (European Central
Bank) shall be to maintain price stability'.
Inflation is to be kept down at all costs, deflationary policies are
to be pursued. All governments have
to manage the balance between the evils of inflation (and higher employment
rates), or deflation (and higher unemployment rates).
The monetary policy of the European Central Bank has come down firmly on
the side of deflation.
The euro zone has been a disaster zone for jobs and employment. Rates of unemployment in Europe have been steadily rising and are much higher across Europe than compared to Britain. If Britain joins the euro and submits her economy and monetary policy to the control to the European Central Bank then every indication is that levels of unemployment will rise to European levels.
Historically Britain enjoys a
very high level of foreign investment. Countries
choose to invest in Britain for a variety of reason e.g.: the use of English as
a world business language; lower levels of taxation; the adoption throughout the
English speaking world of accounting practices and business models that have
their roots in Britain; the reliability and quality of the workforce; the
relatively lower level of regulation and corruption compared to Europe; the
pre-eminence of the City of London as a financial centre; and a whole host of
other reasons.
Since the introduction of the
euro billions of dollars have left Europe for investment in the USA and other
locations. Investors in Europe itself have shown that they do not have faith in
the euro. Britain is still one of
the most popular locations for foreign investment in the world - this is in
spite of Britain's membership of the EU and not because of it.
There are occasional scare stories from some multi-national companies
saying that they might pull out of Britain if she does not join the euro.
These statements need to be put in context: they are from a tiny number
of individual companies and they do not reflect the overwhelming popularity for
Britain as a world investment centre; these companies favour Britain's
membership of the euro for their own operational reasons that have nothing
whatsoever to do with Britain's fundamental economic or democratic interests.
Yes it does.
The setting of interest rates is a key lever of economic control open to
governments. During a recession a
government may want to lower interest rates to encourage spending and ease the
burden on businesses and mortgage payers. During
periods of economic boom or inflation the government may want to increase
interest rates to dampen down demand and reign back the economy.
If Britain hands over these powers to the European Central Bank then
these options are no longer open to her.
In Britain interest rates used
to be set by the Chancellor of the Exchequer.
After the Labour Government took control in 1997 they handed this power
over to the Governor of the Bank of England and the Monetary Policy Committee.
This was done in order to prepare the British people psychologically for
the eventual handing over of control of interest rates to the European Central
Bank. However the British
parliament could still assert its power and take back the power to set interest
rates. The Bank of England only
enjoys its current independence through licence from parliament.
In the euro-zone one single interest rate will apply to all EMU countries. Because of a fear of inflation in say Germany or France, European interests rates could be set at a high level. Jobs would then be lost not just in the booming economies but also in countries where there was no inflationary threat - thereby piling economic misfortune upon misfortune. This is already happening. The single biggest threat posed by the euro and the European Central Bank is that of the 'one size fits all interest rate'.
No. As they say, only death and taxes are inevitable. The concept of the European Single Currency is based purely and simply on the ideal of a numerically small political elite who wish to bring about a new European corporatist super-state that is governed by decree from the centre by a self-selected, 'wise, all-knowing' elite. They have shown remarkable tenacity and skill in developing this project over a very long period of time but there is no inevitability about it at all. In 1940 most of Europe thought that it was inevitable that Britain would fall and that Germany would be victorious. It didn't happen then and Britain doesn't have to join the euro now.
This is an argument sometimes
put forward by pro-euro fanatics, and it is very strange.
On the one hand they say that the euro will make the participating
countries more prosperous, and yet on the other hand that Britain might be
punished if we stay out. If the
euro really does work then surely being left outside of this economic paradise
will be punishment enough?
What does this mean? Would Britain lose influence in the European Union?
The European Central Bank has already been set up, the bankers have been
appointed, the decisions have been taken and the policies have been set.
The ECB is independent of national governments, that's the whole point.
Only the President and Members of the Board can make decisions - indeed it is
illegal for them to be influenced by national governments.
There is no influence worth having to lose.
What about the rest of the
world? Britain is not a minor or
even a medium world economy - Britain is the fourth or fifth largest economy in
the developed world, America, Japan
and Germany are bigger, and we are about the same size as France. Britain has its own place at the table of the International
Monetary Fund and the G7 meetings of the world's top economies.
The European Union would like to eliminate all representation from its
individual member countries and put an EU representative in their place.
If Britain joins the euro her influence in the world would be greatly
diminished not increased.
The European Single Currency is
not the first example of a single currency area.
There are other historical examples of single currency areas made up of
nation states. The late nineteenth
century saw the Latin Union, a single currency area comprising France, Belgium,
Switzerland, and Italy. Twentieth
century examples have been the Central, East African and
Caribbean federations; Maphilendo, comprising Malaya, the Philippines and
Indonesia; and in different circumstances the constituent parts of the old
Soviet Union. Without exception all
these single currency areas have failed and broken up because they did not have
the characteristics necessary for success.
Within the EU itself there were
two distinct periods when the currencies of member states were locked together.
These were the currency Snake between 1970 and 1975, and the Exchange
Rate Mechanism of 1979 to 1993. Both
succumbed to economic failure triggering a combination of political and
speculative pressures that led to their collapse.
Anyone who in Britain who remembers the early 1990s will recall the
financial and economic pain caused by Britain's participation in the ERM, in
terms of high interest rates, crippling mortgage repayments, bankruptcies, loss
of jobs and increased unemployment.
In all the above cases the
arguments for currency stability were very similar to those heard today for the
European Single Currency. History
is therefore full of warnings about the current drive to establish European
Monetary Union.
There are about 180 independent
currencies in the world today. As
soon as any country gains its independence it establishes its own currency, as
demonstrated by the break up of the former Soviet Union.
Outside of the European Union there is no country in the world today that
plans to give up its currency. Countries
with their own currency are made up of rich, poor, big, small, successful
economies, unsuccessful economies, democracies, communist tyrannies, right-wing
dictatorships, and every form of government that exists.
Some are nations with relatively small populations living right next door
to nations with large populations, for example Canada and the USA.
But none of them feel the urge to abolish their currencies in favour of
someone else's. All of them know
that to control their own currency is vital to having control of their own
economic destiny to the greatest possible degree.
If it is not right for Canada to adopt the US dollar when both nations
use the same language, and both use currencies called the dollar, then why is it
right for Britain to adopt the euro?
To do so flies in the face of all the evidence from every part of the
world.
The main advantage is that is that no country can have sovereignty or democracy within its own borders unless it controls its own currency and monetary and economic policy. Once such control has gone elsewhere then real power has gone too and can no longer be subject to democratic control. Every independent country wants its own currency. Having its own currency and monetary policy enables a country to make choices about public finances, taxation, and expenditure. By changing the exchange rate for example a country may better ride through a rough economic period caused by unexpected world events, difference rates of inflation, or other unforeseeable troubles, without growth rates going down and unemployment rising. A human being cannot reach independence until he or she is responsible for his or her own income and expenditure; a country cannot be independent unless it has the same power.