Sir: Michael Purshouse's arguments on monetary union (letter, 14 February) are not sustainable. He cannot understand, he says, how in practice individual EU governments will be constrained to pursue responsible fiscal policies. The Maastricht treaty sets out the direct constraints with unusual clarity (in Article 104c), which requires member states not only to "avoid excessive government deficits" and "exercise budgetary discipline", but also to keep the ratio of government debt to GDP down to strict levels (set out in the protocol on the convergence criteria). Alternative funds cannot therefore "be used with relative impunity" on the capital markets, as Mr Purshouse suggests.

Moreover, the "durability of the convergence achieved by the member state" must also be "reflected in the long-term interest rate". It would obviously not be acceptable for the latter to be forced up by excessive government borrowing.

Mr Purshouse is wrong to say that the effect on interest rates would be "proportionately" less when the increased borrowing was drawn from a larger pool. European borrowing is already largely internationalised, and the "larger pool" effect is likely to be largely offset by the bigger volume of borrowing.

But perhaps the greatest constraint of all on governments is the need to keep prices stable. This is not merely one of the principles to which we are committed under the Maastricht treaty. It is also basic common sense. Deprived of the addictive drug of devaluation (which enables a country with poor economic discipline to avoid making its production efficient and competitive), member states would have to keep their economy in good order with low inflation (price stability) and low interest rates in order to keep their export prices competitive. For that, they would have to pursue sensible and responsible fiscal and borrowing policies. I am astonished that anyone concerned about Britain's future should even consider prolonging the system under which the pound sterling has lost nine-tenths of its value since 1950.

Yours faithfully,




15 February