It’s the euro’s tenth birthday. And in many ways, it has proved the sceptics wrong and gone from strength to strength. But that’s no reason for Britain to join, says David Stevenson.
What’s the track record?
Last Friday saw the euro’s tenth birthday. Its creation in 1999, replacing the individual currencies of 11 European Union countries with a single medium of exchange, was a momentous achievement by the European Central Bank, which had been set up just seven months earlier. Initially, euros were solely used as an electronic means of payment, with banknotes and coins being introduced in 2002. Despite initial fears that the single currency would implode, its average values since inception have been £0.67 and $1.15 against the pound and dollar respectively, says Halifax research. By 2006, euro notes in circulation had surpassed the worth of circulating US dollars, making the single currency the world’s largest by cash value. Today, with €750bn in circulation, the single currency is used by 327 million Europeans across 16 countries – more than half of the EU’s member states – and also in 11 other countries and territories. And last year’s financial market turmoil proved good news for the euro, with all-time highs being reached against the greenback on 22 April ($1.60) and against sterling on 29 December (£0.98).
And the eurozone’s still growing?
It seems there’s an ever-lengthening queue to join, made up of eastern European countries hopeful that membership will help protect them from the worst ravages of the global economic crisis. The latest recruit is Slovakia, with its 5.4 million inhabitants, whose 1 January sign-up showed “excellent timing”, says Miroslav Plojhar at JP Morgan – “the decision was taken at the top of the cycle”. An EU member since 2004, Slovakia achieved record car-industry-driven growth of 10% last year, enabling the country to dodge the damage inflicted on its neighbours Poland, Hungary and Ukraine. But not everyone who could join the euro wants to. With its sound public finances, low inflation and stable exchange rate, Denmark would sail through the entrance exam. But the Danes keep voting against signing up. And on the western edge of Europe, of course, there’s another notable absentee: Britain.
So will Britain join?
Some would like to. “Thanks to the idiotic economic policies of Gordon Brown,” says Simon Heffer in The Daily Telegraph, “sterling is a basket case.” British exporters would love to ‘lock in’ that sterling collapse (which makes it so much easier to sell their wares into Continental Europe). So would the UK tourist industry, as the low pound cuts the cost of travel to this country. European Commission president José Manuel Barroso has recently claimed the UK is “closer than ever before” to joining the euro and that the “people who matter” in British politics were eyeing the move.
Just a matter of time, then?
Business secretary Lord Mandelson has admitted the government still wants the UK to join the euro, but “not for now”. His euro-enthusiasm isn’t shared by much of the rest of the country, particularly those who import from or holiday abroad. The latest BBC poll showed just 23% of Britons in favour of joining the single currency, with 71% against. The pound’s recent fall against the euro made only 15% more likely to vote yes, while 69% said it made no difference. Shadow foreign secretary William Hague said last week that the Tories would never take Britain into the euro: “Giving up our currency would mean losing a vital tool for trying to run the British economy in the interests of the British people – and that’s an unacceptable loss of this country’s independence.”
Isn’t this all petty nationalism?
Not really. With its housing boom turning sour, the City shrinking and household debt higher than in the US, Britain is in an economic mire. “Whether or not you think Britain should be part of the single currency in the longer term, this isn’t the time to apply,” says the Evening Standard’s Anthony Hilton. “We’re likely to be among the worst affected economies in the current downturn. The rapid sterling fall speeds up the readjustment process, making us poorer in relation to the rest of the world but better able to rebuild our economy through much cheaper exports.” With banks shutting off corporate credit lines, at least a lifeline – maybe the difference between survival and failure – is handed to UK manufacturers. “It’s what an independent currency is for,” says The Daily Telegraph’s Ambrose Evans Pritchard, “it preserved social stability in 1931 when Britain left the Gold Standard, and again in 1992 on leaving the ERM – from which the pound later roared back higher.”
Will the euro hit big trouble?
The next few years could prove tougher than the last decade. Eurozone economic indicators have “taken a radical turn for the worse”, says Capital Economics. “Wages in some eurozone countries look dangerously out of whack”, says The Economist. Unit labour costs in the PIGS (Portugal, Italy, Greece and Spain – Ireland is an honorary member, says the Daily Mail’s Peter Oborne) rose 10%-20% more than the eurozone average between 1999 and 2007, says the ECB’s Monthly Bulletin, making it harder for their firms to compete. Housing crashes have crushed domestic demand, public finances are worsening and unemployment is up. “It’s far from self-evident that it’s better to be inside the euro,” says Francesco Caselli at the LSE. Oborne goes further: “The euro will never reach its 20th anniversary as the PIGS plunge for the exit – and the collapse of the eurozone won’t be… peaceful. In Britain we can thank our lucky stars we don’t have to go through the same… crisis“.
Category: The End of Europe