Should Joining the Euro Be Back on the Agenda
One of the most successful businessmen of his time Peter Sutherland believes it is time to put the case for joining the Euro back on the agenda for policy discussion. 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 now much weaker perhaps decisively so. A growing array of decisive factors have changed. As it is ever popular to quote Keynes, it is worth bearing in mind the reproof he directed at someone who criticised the apparent inconstancy of his expressed views: “When the facts change I change my mind. What do you do?” At the time when the case for the Euro was last went over, British citizens could be excused for following the wise old Americans saying “If it isn’t broken, don’t fix it”.
This well-founded attitude was based on a long period of a sustained increase in the quality of living and moderate inflation. It was mirrored in a long run of predominantly negative answers to the question, as asked 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?’ Few would agree this American adage is appropriate today. Attitudes towards joining the Euro seem like they are definitely changing.
A critical factor in the long run of prosperity was without a doubt 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 debatably 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 prevailing in the late ’90s all the way through to 2007 and it would be sensible 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 talking about the exchange rate, it is not just banter about whether the rate is correct or not at a particular time that should be important. Rather, the lesson that might be learnt is that the behavior of the exchange rate in recent times gives little 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.

