Fate of single currency hangs in the balance

The success or failure of a single currency will depend on decisions made during the next year, according to an authoritative new report.

Professor David Currie of the London Business School argues in "The Pros and Cons of EMU" that the decisions European governments have not yet made - most crucially on the way that fiscal policy will work under monetary union and on reforming labour markets - will determine whether a single currency succeeds or fails.

The report says: "Going forward with EMU does not condemn Europe to failure, nor guarantee its success. And the same goes for abandoning the single currency project ... everything will depend on the wisdom of the choices that governments still have yet to make." The report is the most extensive and balanced so far into the pros and cons of the single currency project, and contrasts with the polemical tone of many reports on the subject.

Commissioned by the Economist Intelligence Unit, the report was sponsored by several leading international banks and companies, including ABN-Amro Hoare Govett, Kleinwort Benson, Prudential and Rothschilds.

The benefits of a single currency discussed in the report include gains to consumers from greater competition and the rationalisation of production across Europe, and low interest rates. The report says that although it is possible that the new euro could become a weak currency, "the euro countries are likely to enjoy low and stable inflation ... because of the attention that has been paid to the design of the European Central Bank."

The drawback, however, is that governments will not be able to use interest rates and exchange rates to respond to particular economic circumstances. The report says: "In many countries this freedom has been greatly abused: the cost of surrendering it is therefore smaller than might be thought. But in countries where monetary policy has been well conducted, the cost is significant."

Although the report is careful to maintain a balanced position and consider all the arguments it says: "We do expect EMU to happen. Far more tentatively we expect it to be a success, though not necessarily for all its members." Professor Currie believes that European unemployment will remain high and even intensify in some parts of the EMU zone.

He argues that coping with unemployment, and increasing the chances of EMU's success will require "appropriate reform of fiscal, welfare and labour market arrangements within the EU to remove undue rigidities in European economies. This would in part require the reform of the stability and growth pact."

The report says that individual nations should be able to borrow more over the economic cycle, to ease national economies through downturns, while maintaining constraints on excessive borrowing in the long run. At the moment the stability pact sets out fines for deficits in excess of 3 per cent of GDP, although it remains to be determined how strictly this would be interpreted. The report also suggests redirecting - and possibly expanding - EU spending towards regional unemployment rather than the Common Agricultural Policy. "It may well mean an evolution over time towards a form of fiscal federalism," it adds.

Arts and Entertainment
Lena Dunham
booksLena Dunham's memoirs - written at the age of 28 - are honest to the point of making you squirm
Arts and Entertainment
A bit rich: Maggie Smith in Downton Abbey
tvDownton Abbey review: It's six months since we last caught up with the Crawley clan
Frank Lampard and his non-celebration
premier leagueManchester City vs Chelsea match report from the Etihad Stadium
Life and Style
A new app has been launched that enables people to have a cuddle from a stranger
techNew app offers 'PG alternative' to dating services like Tinder
Jacqueline Bisset has claimed that young women today are obsessed with being 'hot', rather than 'charming', 'romantic' or 'beautiful'
Arts and Entertainment
Jake Quickenden sings his heart out in his second audition
tvX Factor: How did the Jakes - and Charlie Martinez - fare?
premier league
Arts and Entertainment
'New Tricks' star Dennis Waterman is departing from the show after he completes filming on two more episodes
tvOnly remaining original cast-member to leave crime series
Mario Balotelli celebrates his first Liverpool goal
premier leagueLiverpool striker expressed his opinion about the 5-3 thriller with Leicester - then this happened
ebooksAn unforgettable anthology of contemporary reportage
Britain's shadow chancellor Ed Balls (L) challenges reporter Rob Merrick for the ball during the Labour Party versus the media soccer match,
peopleReporter left bleeding after tackle from shadow Chancellor in annual political football match
Arts and Entertainment
Female fans want more explicit male sex in Game of Thrones, George R R Martin says
tvSpoiler warning: Star of George RR Martin's hit series says viewers have 'not seen the last' of him/her
Plenty to ponder: Amir Khan has had repeated problems with US immigration because of his Muslim faith and now American television may shun him
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Senior BA - Motor and Home Insurance

£400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...

Market Risk & Control Manager

Up to £100k or £450p/d: Saxton Leigh: My client is a leading commodities tradi...

SQL Developer - Watford/NW London - £320 - £330 p/d - 6 months

£320 - £330 per day: Ashdown Group: The Ashdown Group have been engaged by a l...

Head of Audit

To £75,000 + Pension + Benefits + Bonus: Saxton Leigh: My client is looking f...

Day In a Page

A roller-coaster tale from the 'voice of a generation'

Not That Kind of Girl:

A roller-coaster tale from 'voice of a generation' Lena Dunham
London is not bedlam or a cradle of vice. In fact it, as much as anywhere, deserves independence

London is not bedlam or a cradle of vice

In fact it, as much as anywhere, deserves independence
Vivienne Westwood 'didn’t want' relationship with Malcolm McLaren

Vivienne Westwood 'didn’t want' relationship with McLaren

Designer 'felt pressured' into going out with Sex Pistols manager
Jourdan Dunn: Model mother

Model mother

Jordan Dunn became one of the best-paid models in the world
Apple still coolest brand – despite U2 PR disaster

Apple still the coolest brand

Despite PR disaster of free U2 album
Scottish referendum: The Yes vote was the love that dared speak its name, but it was not to be

Despite the result, this is the end of the status quo

Boyd Tonkin on the fall-out from the Scottish referendum
Manolo Blahnik: The high priest of heels talks flats, Englishness, and why he loves Mary Beard

Manolo Blahnik: Flats, Englishness, and Mary Beard

The shoe designer who has been dubbed 'the patron saint of the stiletto'
The Beatles biographer reveals exclusive original manuscripts of some of the best pop songs ever written

Scrambled eggs and LSD

Behind The Beatles' lyrics - thanks to Hunter Davis's original manuscript copies
'Normcore' fashion: Blending in is the new standing out in latest catwalk non-trend

'Normcore': Blending in is the new standing out

Just when fashion was in grave danger of running out of trends, it only went and invented the non-trend. Rebecca Gonsalves investigates
Dance’s new leading ladies fight back: How female vocalists are now writing their own hits

New leading ladies of dance fight back

How female vocalists are now writing their own hits
Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments