Life outside Euroland is rich and full of promise

The nations that have decided against joining the euro are not poor, isolated little countries
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ANYONE WHO believes the line that joining Euroland is somehow inevitable may like to consider the alternative: remaining a member of Northland.

Northland? Never 'eard of it. No, because it does not exist. But if you were to add up the Western European countries that are not members of the euro and call them Northland, you would have a country that would be slightly larger even than Germany both in population and economic output. Were Northland a single country, it would be the third largest economy in the world.

Who is in Northland? Well, there is the UK for a start. There are the other two Western European non-euro members of the EU, Sweden and Denmark, and three other European countries outside the EU, Switzerland, Norway and - not to be forgotten - Iceland. (I haven't counted the territories that are associated with the UK but are outside the EU - the Channel Islands, the Isle of Man and Gibraltar, though added together they have almost the same population as Iceland: 250,000 against 270,000.)

The total population of Northland is 85.2 million, which compares with Germany's 82.1; their total GDP last year was $2,207bn (pounds 1,300bn), compared with Germany's $2,132bn (pounds 1,250bn); and GDP per head was almost identical at $25,900 (pounds 15,200) per head, compared with Germany's $25,970 and an average for Euroland of $22,130 (pounds 13,000).

How come Northland is richer than Euroland? The main reason is that Switzerland, Norway and Denmark all have GDP per head well above $30,000 a year; the UK pulls the average down, but since it has narrowed the gap with continental Europe over the last seven years, not by very much. The UK GDP per head, at $23,474, is now more than 10 per cent higher than Italy and only 3 per cent lower than France.

But leave aside the current numbers and look at the commercial strengths, for this gives a feel for the dynamics of Northland's economic future vis-a-vis that of Euroland.

The key point to grasp is that by and large Northland is particularly strong in rising industries and is not heavily represented in declining ones. Both the UK and Switzerland have strong international financial service industries. You may not have noticed, but two British banks, Lloyds and HSBC, have become the second and third largest banks in the world by market value, behind the US Citigroup but far larger than Deutsche Bank, continental Europe's largest bank. The UK and Switzerland, with Sweden, also dominate European pharmaceuticals. In communications, Sweden's Ericsson is one of the two main European mobile phone manufacturers (the other being Nokia in Finland), while Britain's Vodafone looks like becoming one of the three or four global mobile phone operators.

The negatives are quite short. Northland is lightly exposed to old industries such as steel and coal; it has a small (and, in the case of Denmark, particularly efficient) agricultural sector. The UK has managed to downsize its ailing motor industry, while Sweden has sold control of Saab and is in the process of selling Volvo. Northland is also particularly strong in developing intellectual property exports. The United States is far the largest net exporter of intellectual property in the world, but the UK is second and Sweden is third. By contrast, Euroland is a net importer. As trade moves from shifting goods around to shifting ideas, Northland gains more and more of an advantage over Euroland.

Partly as a result of this nimble restructuring of its industries, Northland has half the unemployment of Euroland: just under 5 per cent, compared with 10 per cent.

There is one further reason for optimism about the economic future of Northland compared with Euroland. It has a more favourable demographic outlook. The two largest members of Northland, the UK and Sweden, have reasonably high birth rates: with the exception of Ireland, Sweden has the highest of the EU's fertility rates, while Britain's, at 1.8 babies per mother, is also relatively high. By contrast, Euroland has three of the lowest fertility rates, with Germany, Italy and Spain all around the level of 1.2 to 1.3 babies per mother. In another 30 years' time Euroland will have a vast army of retired people supported by a smaller population of working age. In Northland the balance between workers and dependants will have deteriorated, but by nothing like the same extent.

But wait a minute, you may say: this is all fantasy, for Northland is not a country. It has no single political control, no common ideology, no particular vision of what Europe ought to be, and certainly no common currency.

That is precisely the point. Northland can be successful without any of these things. It can be more successful than Euroland. It already is in terms of wealth per head; and as I have tried to indicate, its advantage is likely to grow because of its more favourable commercial structure and its more favourable demographics. Being physically close to markets is irrelevant if your output is very light (like pharmaceuticals) and so can be transported very quickly and cheaply, or is weightless (like software, research and telecommunications). Being on the fringe of a larger economic zone used to be a disadvantage. Now it has become irrelevant.

The point of all this is not to argue for or against British membership of the euro. That is a decision that goes far beyond economics. It is simply to point out that the Western European nations that have chosen, for whatever reason, not to have become the founding members of the euro zone are not poor, isolated little countries left, somehow, out in the cold. Not only are they in total at least as successful economically as the members of the euro zone; they are larger than the euro zone's largest member, Germany. Most important of all, a rational assessment of their comparative advantages and disadvantages suggests that on balance they will probably do better than the euro zone countries in the future.

We all tend to assume that political unity brings economic prosperity: that the economies of scale from access to a larger market makes everyone richer. I'm not sure that was ever true, but in so far as it was, the advantage of being part of a larger economic bloc has surely waned. In so far as Switzerland, Sweden and the UK have been successful, it has been by looking at the world as their market, not just Europe. It is not that the EU is too big a market; it is too small. As for political unity, Northland does well precisely because it does not exist. The moment they launch the "noro" to challenge the euro, it will be time to head for the boats.