Labour movement briefing on the euro
Posted on Wednesday, June 20, 2001BRIEFING ON THE EURO
THE EURO IS A HUGE ECONOMIC GAMBLE…
We have to think about the risks to our economy from joining.
· Unemployment in the 11 countries that have permanently swapped their currencies for the euro is nearly double unemployment in Britain.
· Changing over to the euro from the pound would cost every British household £1,400 or the cost of building 360 new hospitals or paying 2.3 million nurses for a year.
· Because taxes are a sixth higher in Euroland than here and Europe’s politicians want a single Euro tax, this would cost every British household another £1,900 a year.
· You may think British pensions leave too many pensioners badly off. But the situation is worse in Euroland where governments have failed to save to pay pensions in the future. Their taxes will have to go up to provide pensions … and ours would go up as well, inside the euro.
· Tony Blair says lower European mortgages are an argument to join the euro. But UK mortgages are lower than everywhere else, apart from Spain and Ireland.
So, as things now stand, joining the euro will hit ordinary people where it hurts – in the pocket.
AND IT’S A RISK WE DON’T HAVE TO TAKE
It may be a natural sense of modesty but we, in Britain, constantly play down our success.
· We are the fourth largest economy in the world.
· Foreign investment into Britain has hit record after record since the euro was launched. Britain gets more foreign investment than Germany, France and Italy combined. Even Stephen Byers, Trade and Industry Secretary and a prominent fan of the euro, says there is no evidence that foreign investors are shying away from Britain outside the euro.
· Our living standards – on the European Commission’s own figures – are higher than other major European economies like France and Italy and we are fast catching up on Germany.
· Pro-euro campaigners are right to say that having a single currency would be an advantage for British companies trading with those in the eurozone. But only 45 per cent of British trade is with those countries that have abolished their currencies and adopted the euro. And only 17.7 per cent of British gross domestic product is traded with the eurozone. In other words, joining the euro means a potential advantage for a small part of the British economy but probable disadvantage for everyone else.
THE EURO IS UNILATERAL ECONOMIC DISARMAMENT
The euro decision is not just about whose face is on our notes and coins. Joining the European single currency is joining Economic and Monetary Union – it means a single economic policy with a single interest rate and, very likely in the longer term, a single tax system.
You may debate whether a single economic policy is a good or bad thing – it is certainly a massive change in how Britain and Europe are governed and it is undemocratic to ignore it.
Joining the euro means replacing the pound permanently with a single European currency, currently used in 12 countries, all of which are members of the European Union.
· The Bank of England would no longer decide on the level of UK interest rates – and of course mortgage rates. Britain would have the same interest rate as all other countries that have joined the euro, a rate that is decided by the European Central Bank in Frankfurt.
· Even now Britain has to live with the problem of a single interest rate that may suit the south east of England and not the Midlands or the North. How much worse would this problem be with a single euro interest rate? The European Central Bank has the impossible job of choosing one interest rate that is supposed to suit 12 or more different economies and nearly 300 million people. How often is that rate going to suit the different regions of Britain?
· The European Central Bank was given only one goal in the Maastricht Treaty – price stability or fighting inflation. Unlike the American central bank, it has not been asked to promote growth and jobs. In other words, the euro has been founded on pure monetarist principles
· It is increasingly obvious that countries that join the euro will have far less control over taxation and public spending. In the long-term, there has never been a monetary union – a single currency area – that has not had a single tax policy and single budget. Europe’s political leaders talk about tax harmonisation or coordination but Belgium – which takes over the EU presidency from July 1 – has already proposed a single budget.
· Gordon Brown has already been told off twice by the European Commission about his plans to increase public spending. The Commission says that promised increases in spending on the NHS and schools would, if Britain were in the euro, break European Union rules.
Joining the euro, in short, is about handing national control of all the important aspects of economic policy to a European level. Mortgages, taxes and how much of Britain’s wealth we choose to spend on public services would all be set at European level. Our Chancellor of the Exchequer, whose job it is to serve Britain’s interests, would be made redundant.
AND IT IS FOREVER
The loss of control would be permanent. Britain linked the pound to European currencies 10 years ago in the ERM and it was a national disaster – 100,000 businesses went under, unemployment doubled and 1.75 million people found their homes were worth less than they paid for them. That time, we were able to get out. This time, we won’t.
WE ARE STRONG ENOUGH TO CHOOSE
So the economics of joining are very risky. But people still worry about being “left behind” if we don’t. But there is no evidence that we are losing out by remaining out of the euro.
Politically, Britain has never been so involved in Europe. We are heavy hitters in every area of European policy-making. Economically, it is a fact that Britain and the other European countries that are outside the euro are the best performing economies on the continent. In Denmark, which voted no to the euro last autumn, 80 per cent of businesses have said that the vote has not damaged them in the least.
We currently have the best of both worlds. We are leading members of the European Union and can trade freely in the European single market. And outside the euro, we can still run our economy in Britain’s interests. We have to think very hard whether we are willing to trade this enviable position for an economic gamble that could damage our economy and a political system that takes power further away from us – the ordinary voters that make up Britain.
We have the luxury to wait and see whether the euro is a success. Let’s find out more before taking a leap into the dark. Let’s not be panicked into the wrong decision.