Wednesday, March 28, 2012

Should Britain join the Euroland

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. “Britain Should Join the Euroland”. Discuss


‘Euroland’ is the colloquial terminology used to describe the collection of European countries that have fully adopted EMU and use the Euro as their currency of exchange. The whole concept of Economic and Monetary Union (EMU) came into official being at the Maastricht Treaty in December of 11, and the Euro started circulating in participating countries on the 1st of January 00. Britain, along with Denmark and Sweden, opted to pull out of adopting the Euro, and Britain kept their sterling pound in circulation. The Government and the people of Britain have long been divided over when would be the right time, if at all, to fully undertake EMU with Europe and exchange their own currency for the Euro. Combining research with my own point of view, I would like to present both sides of the argument as to whether or not they should join EMU, and also hopefully shed some light on why they are not part of EMU yet.


Britain has always seen itself as separate to Europe, and this has been reflected in it’s attitude towards The European Union and EMU as a whole. They only joined the European Community (the EU’s predecessor) in 17, so were not part of the original six founders, and this perhaps explains some of it’s aloofness when it comes to matters of European integration. In John Millful’s book he explains it slightly deeper, ‘Part of Britain’s unsure attitude to Europe has been based upon a self-perception of ‘exceptionalism’. Lord Beloff refers to Britain’s specific historic experience, its unwritten constitution, and it’s identity which is contrasted to that of “continental Europeans”. Unlike them the British are not suitable for full and devoted membership of the Union’ (John Millful, Britain in Europe, 1, Ashgate Publishing House, England). From this quote we can see that perhaps it is the British perceptions of themselves that have a lot to do with them not being part of the EMU yet. This quote taken from the same source reinforces this view, ‘As an island nation, separate from continental Europe, and as a great Empire…., British elites came to see their country as distinct from Europe and British identity came to be linked to its Great Power status and world role.’


But times are obviously changing Britain no longer has its empire and Europe is emerging as an economic superpower. A more pro-European Labour Government came into power on the 5th May 17, taking over from a Conservative Government that had found itself increasingly mired on European issues (according to Henig it was this split over European integration that had caused Margaret Thatcher to be deposed of her job as prime minister and replaced with John Major (Stanley Henig, The Uniting of Europe, Routledge, New York, 00)).


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The Tony Blair Government called themselves ‘New Labour’, and used the term ‘modernisation’ to describe how Britain would change their perceptions of themselves. Blair is very pro-Europe and the Euro, and soon after his election said, ‘there is confidence in Britain, a sense of dynamism and adventure and, as a result, people are not frightened of Europe.’ Britain’s trade in Europe had risen to account for 51% of all its foreign trade, as opposed to 6% in the mid 150’s, and this, coupled with the shrinking of their empire, showed that, as Defence Secretary George Robertson said ‘Europe is the only real arena where British influence can be exercised’ (John Millful, Britain in Europe, 1, Ashgate Publishing House, England). I think it looked to be that if Blair had his way Britain would be under the Euro sooner rather than later, and quotes like these of his reinforce that theory ‘The Euro is now a reality, so I think the idea that we can run away from it or hide our heads in the sand and pretend it doesn’t exist would be very foolish’ (Christopher Dickey, Unity After the Euro, Newsweek (International Edition, 14th January 00, New York).


Blair placed the major responsibility of the EMU decision with the Chancellor of the Exchequer, Gordon Brown. Brown set out five tests that would need to be satisfied before Britain joined EMU


• Is entry good for investment?


• Is it good for jobs and prosperity?


• Is it good for Britain’s financial services industry?


• Is there enough flexibility on both sides to cope?


• Are British and European economies sufficiently converged for Britain to join?


The British public would also have to show approval in a referendum vote. Brown, with his five points, seems to take the viewpoint that ‘a decision taken in haste to join the single currency is one we might live to regret for a very long time’ (David Smith, Plotting Our Path into Euroland, Management Today, London). This view is adopted by the whole Labour Party, as we can tell from this quote taken from their website, ‘In principle, we are in favour of UK membership of EMU, in practice the economic conditions must be right’ (www.labour.org.uk). So the determining factor would have to be whether the economic cause for joining is clear and unambiguous.


Bradley and Whittaker share a very pessimistic view of the economics of Britain joining EMU. One of the advantages cited for the merger would be it would remove the uncertainty of exchange rate fluctuation for trade and investment between member countries. But as Bradley and Whittaker point out 4%of British foreign trade is still outside of Europe, so trade related benefits of EMU would be lower for them than for other members. Of their foreign trade capital, three quarters of 000 billion pounds lies outside Europe, so the foreign exchange value of the pound follows the US dollar closer than it does the Euro. Thus aligning the pound with the Euro would raise the overall level of exchange rate risk for Britain (S. Bradley, J. Whittaker, Britain, EMU and the European Economy, Industrial Relations Journal, Blackwell Publishing, March 000).


Another economic advantage of EMU is it’s supposed to deliver low and steady inflation for the Euro currency. Bradley and Whittaker again argue against this, saying the one-size fits all interest rate of the EMU is one of it’s greatest flaws. A single Euro rate cannot be appropriate for all EMU countries, because they are not all at the same stage of the business cycle. Britain’s interest rates are poorly aligned with other EMU states (it is 6%, while the Eurozone’s is %), thus convergence would be problematic (S. Bradley, J. Whittaker, Britain, EMU and the European Economy, Industrial Relations Journal, Blackwell Publishing, March 000).


So while the economics at present do not favour Britain’s entry, those who do believe it should join still have a strong argument. Peter Mandelson in fact believes there are six economic tests, rather than just Browns five. The sixth What is the cost to the UK economy of staying out of the Euro?’ (Peter Mandelson, There are Six Economic Tests, not Five, The Guardian, May 00). He thinks that Britain is turning their back on what has become their domestic market for goods and services. As long as Britain stays out of Euroland, ‘it will mean fewer jobs being created, fewer foreign businesses investing here, and less trade being done with our European partners’ (Peter Mandelson, There are Six Economic Tests, not Five, The Guardian, May 00). He believes a damaging loss of influence will be suffered if Britain doesn’t signal their intention to join within a realistic time frame. In my opinion this is a strong point- Europe looks set to certainly become a global economic superpower, and Britain will not want to be left in the dust if this happens.


Justin Erquhart- Stewart, head of the stock trading unit at Barclays Bank in London, agrees with this, saying, ‘I think theres a concern we might end up as a sideshow unless we get in there with the rest of Europe. We are by far and away Europe’s largest trading equity market, we do more foreign exchange and other trading than any other financial trading capital. But now London is feeling like it’s been left out of the Euroland party’ (Suzanne Mcgee, Humbler Britain Rethinks Europhobia, Wall Street Journal, Jan 11th 1). Proponents of EMU for Britain are scared of a similar situation arising to that of the USA and Canada, where the USA has distinct and established inter-state trading routes, and Canada seems to sit marginalized and dull on the outside of a big trading bloc. Britain doesn’t want to be the ‘Canada of Europe’.


Richard Layard of the Financial Times strongly believes in Britain merging with the EMU, saying that for trade purposes ‘separate currencies, with fluctuating exchange rates, are themselves barriers to trade and investment’ (Richard Layard, One Market Does Demand One Money, Financial Times, June 1th 000, London). He believes that joining the Euro does not have to mean Britain should copy bad institutions where they exist on the continent, but can still maintain their high economic standards. He quotes this in his article to support his argument ‘In the rest of Europe productivity per hour worked north of the Alps is as high as the US and 0% higher than Britain’.


Britain and Europe are keenly aware of the massive size of the decision of whether or not Britain joins the Euro. It has been said the adoption of the EMU in Europe ‘could be the most far reaching political event of the 0th Century’ (Martin Feldstein, quoted in David Mckay, The Political Sustainablity of European Monetary Union, Cambridge University Press, 1). This could look like an exaggeration when compared with events like World War , but it still puts the message of the importance of the event across. These words of Jacques Delors, who was head of the European Commission, sum up the importance of Britain’s entry to this event ‘If Britain under Blair embraces the single currency, it will play a leading role, perhaps even the leading role in framing the future of Europe’ (Christopher Dickey, Unity After the Euro, Newsweek (International Edition,


14th January 00, New York). Britain is essentially a handbrake on Europe emerging as a world superstate, and that is why European officials need them to join EMU.


Yet still Britain’s public is mostly against joining the Euro. 61% of the British people said no to the Euro in June this year, up from 54% in December 00. Even 4% of European people think that Britain should wait and see how the Euro develops for the time being. Britain is now keenly aware of its position as the fifth largest economy in the world. Their economic growth for 00 stood at 1.8%, which is high when compared to Germany’s (who incidentally are Europe’s largest economy) 0.% growth rate (Stanley Reed, Britain No Go on the Euro, Business Week (US Edition), June 16th 00). These statistics seem to quell the feelings I mentioned earlier that London may lose it’s financial pre-eminence if Britain failed to join.


These figures have something of the same effect Since the Euro was introduced in 1, British GDP growth has averaged 0% higher than in the Euro zone. In March of 00, UK unemployment stood at 5.1%, whilst the Eurozone average was 8.7%, and Germany’s stood at 10.7%. Thus clearly Britain had less of an unemployment problem. In 001 the UK received 4% of the foreign investment into the EU, second only to Norway. This clearly shows Britain’s dominance of the European external market (Jennie Jones, Is the Euro a No Go Zone?, Time Finance, vol. 161 no. 1, May 6th 00).


From what I have researched, and in my opinion, the route that Britain are taking at the moment seems to be the safest and wisest, not only for the British Government, but also for Britain’s economic situation. Reed said that ‘Blair remains a formidable Prime Minister, but the Euro is the kryptonite of British politics if not handled carefully it can bring superman to his knees’. Blair often appears over eager to rush into EMU, but he would be wise to follow the lead of Gordon Brown, and the feelings of the public, and just bide Britain’s time before rushing into EMU. This may not satisfy those pro-Europa individuals, who want integration and the formation of a world superstate to happen immediately, but it will likely prove to be the wisest. Britain is enjoying the best of both worlds at the moment, with being part of the EU and having their own currency, so they should try and maintain this as long as it’s viable.


Reference List


• John Millful, Britain in Europe, 1, Ashgate Publishing House, England


• Stanley Henig, The Uniting of Europe, Routledge, New York, 00


• Christopher Dickey, Unity After the Euro, Newsweek (International Edition), 14th January 00, New York


• David Smith, Plotting Our Path into Euroland, Management Today, London


• (S. Bradley, J. Whittaker, Britain, EMU and the European Economy, Industrial Relations Journal, Blackwell Publishing, March 000


• Peter Mandelson, There are Six Economic Tests, not Five, The Guardian, May 00


• Suzanne Mcgee, Humbler Britain Rethinks Europhobia, Wall Street Journal, Jan 11th 1


• Richard Layard, One Market Does Demand One Money, Financial Times, June 1th 000, London


• Martin Feldstein, quoted in David Mckay, The Political Sustainablity of European Monetary Union, Cambridge University Press, 1


• Christopher Dickey, Unity After the Euro, Newsweek (International Edition,


• 14th January 00, New York


• Stanley Reed, Britain No Go on the Euro, Business Week (US Edition), June 16th 00


• Jennie Jones, Is the Euro a No Go Zone?, Time Finance, vol. 161 no. 1, May 6th 00


• www.labour.org.uk





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