Is the Time Right to Join the Euro
The influential businessman Peter Sutherland believes there has never been a more perfect time to welcome back to the agenda the divisive topic of joining the Euro. When the case was looked into historically and, with the publication of the Treasury’s Report on the Five Tests, effectively terminated, not joining the Euro was the more obvious choice. It’s accurate to say the case is not even nearly as strong perhaps decisively so. A number of decisive factors have changed. As this is the time for quoting Keynes, it is worth bearing in mind the reproof he directed at someone who criticised the seeming inconstancy of the views he expressed: “When the facts change I change my mind. What do you do?” First and most important when the case for the Euro was last rehearsed, British citizens could be excused for following the wise old Americans saying “If it ain’t broke, don’t fix it”.
This well-founded attitude was based on a long period of increasing prosperity and moderate inflation. It was mirrored in a long run of predominantly negative answers to the question, as administered by polling organizations, “if there were a referendum on joining the Euro would you answer Yes or No to the question ‘Should Britain join the Euro?’ It cannot be said this American saying holds true currently. Attitudes towards joining the Euro seem like they are definitely changing.
A critical factor in the long run of prosperity was undoubtedly the high value of the exchange rate of the pound against the Euro (and other currencies). Once again, things have changed. Where the exchange rate was arguably higher than it should have been before, now it is debatably too low. It was difficult to recommend locking into the Euro at the rates which were common in the late ’90s all the way through to 2007 and it would be wise to await some appreciation before fully committing now – but that some fall in the exchange rate can be welcomed is hardly beyond debate. Still, while we are on the subject of the exchange rate, it is not just quibbles about whether the rate is right or not at a particular time that should be important. Instead of that, the lesson that might be learnt is that the recent behaviour of the exchange rate gives barely any ground for optimism about its role as a stabilizer when Britain’s exchange rate is floating. It’s true to say that there have been a number of studies which seem to show that the exchange rate may, for many countries, be just as much a source of shocks as a stabilizer of them.
