THE CASE AGAINST EMU
"PENNY WISE, EURO FOOLISH"
How do claims by federalists on the single currency and EMU stand up to scrutiny?
This abridged edition is aimed at the general public rather than economics enthusiasts
For the fuller version, with references & reading list, click: here
1. "A single currency is essential & logical to complete the Single Market"
This European Commission-speak is a case of "Hope they don't think twice about that one" - a single currency (the Euro) is not essential to trade any more than a single language, shoe size or sex!.
2. "There's a one off cost, but savings on currency conversion costs are worth it"
Businessman Rodney Leach estimated UK changeover costs at £15Bn which would take 20 years to achieve a payback (assuming other things being equal, which may not be so. Accountants KPMG have put the figure at nearer £30Bn). An estimate for the retail sector would be £3.5 Bn alone.
3. "A single currency will save the tourist problems/costs in changing holiday money"
True in the immediate sense, but the saving might well be a few pounds a year for most, maybe less than the 2.6% average price increase to be passed on by retailers in converting. If the UK was faced with a high tax regime to stop the single currency falling apart (estimated at £400-1,000 extra per year per person in the UK) foreign holidays could become a thing of the past for many.
4. "A single currency will provide stability/reduce uncertainty and boost trade & employment"
Bank of England Governor Eddie George (Chatham House Conference on Economic & Monetary Union, 24.10.97) has stated that there is no relationship between trade and exchange rate changeability. Prof Feldstein of Harvard University said in 1992 - "Monetary Union is not needed to achieve the advantages of a free trade zone. On the contrary an artificially contrived monetary union might actually reduce the volume of trade and would certainly increase the level of unemployment."
Several European economies have been strained in preparing to join. Their Governments have adopted measures such as imposing taxes to artificially qualify. A single currency managed by the European Central Bank (ECB) would reduce a government's options to cope with economic changes, with the impact most likely falling on employment. And the bad news is that unlike the ERM disaster, with the single currency there is no way out! No wonder federalists keep quiet about this "certainty".
5. "A single currency will remove the option of devaluation from irresponsible short-termist national politicians"
'Devaluation' is a loaded word - and not all devaluation is irresponsible or evil, particularly if a currency is over-valued in the first place, like our strong Pound. After the 1992 devaluation of Sterling, the cheaper Pound allowed the UK to take advantage of growth in the world economy.
6. "An independent European Central Bank will bring a strong currency & have lower interest rates / lower inflation"
This claim is based upon Germany's post-war economic success, but it's a myth that the has been mainly due to an independent central bank (Ian Milne, Maastricht: The Case Against EMU). And the Bundesbank has missed its targets as often as it has hit them! Germany's success factors have included good industrial relations, high skills, a long term financial approach, and above all exporting high value goods while importing lower added-value goods.
The British and continental economies work very differently, and interest rate rises which suit them will harm ours. Our mortgage systems are also very different. Financial journalist Isabelle Murray pointed out the problems and economic disadvantages in obtaining mortgages on the continent. She quoted Mike Lazenby, a Director of Nationwide Building Society, that if anything, adoption of the Euro would mean a slight increase in British borrowers' costs. (Sun, 28.5.98)
7. "An independent European Central Bank will take party politics out of managing the interest rate".
This gem came from Lib Dem MP Menzies Campbell in 1995. Basically a euphemism for explaining that the ECB will not be controlled by a government that is elected - and therefore accountable. You might as well excuse single party states for 'taking party politics' out of decision making!!! It should also be pointed out that the much hyped 'independent' Bundesbank has actually been bound by law to support German government policy. ( Bernard Connolly - The Rotten Heart of Europe)
8. "A single currency will provide enhanced joint monetary sovereignty for EU members."
A reversal of the truth. It will not be countries adopting the Euro that will control monetary policy (interest rates and the money supply or "inflation") - it will be the ECB, treaty-bound not to take instructions from national or EU institutions. National banks will not be truly independent as they will have to conform to the rules set by the ECB, which will enforce a 'single monetary policy' upon them.
9. "A single currency will boost competition/cut prices through making them more comparable, and will lower costs for business"
The effect of saving 0.15% (average) on transaction costs will probably be marginal overall whereas the costs and disruption of changing over would be unavoidable - decreasing our competitiveness! Around 90% of our trade is within the UK or with countries outside the EU, but would suffer these costs; in any case firms trading abroad are already used to shopping around in global markets.
10. "The UK will lose overseas investment if 'left out' of a single currency"
This is purely speculative. In 1994, a Department of Trade & Industry report listed several factors behind winning investment (e.g. the UK's skilled workforce, low tax rates, English language). Neither EU membership nor possible single currency membership were mentioned.
11. "The UK will lose influence if 'left out' of a single currency"
If the UK joins the single currency at a later stage, it will have no direct influence on the ECB, as it will be treaty-bound not to take instructions from member states or EU institutions. Some "influence"!!
12. "A single currency will deter speculators"
The Euro comes into being on 1.1.99, as a 'book-keeping' currency rather than one you spend in shops. It can - and will be - the focus of speculation against the Yen and Dollar. Hypocritically pro-Euro campaigners also crow about the 'opportunities' to deal in Euro-based financial services!
13. "A single currency will prevent 'excessive' government debt and budget deficits"
Not when you look at the fuller picture. A look at the Maastricht Treaty and the 1997 Stability Pact shows that 'excessive government borrowing' is definitely permitted in a recession. And former European Commission President Jacques Delors has warned that with a single currency (EMU) "all members of EMU would become liable for the debts of any single country" in that union.
14. "A single currency will bring Europe closer together."
In a 1995 lecture, mindful of the strains of holding an artificial single currency system together, Bank of England Governor Eddie George warned that the single currency might produce 'less rather than more harmony across Europe" and in 1998 forecast it would bring 'serious tensions' internationally.
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New Alliance, Fourth Edition, August 1998 - Please circulate freely for non-profit purposes -
Date this page was updated 22 August 1998