Outlook: Eddie and the Euro-phobes

WHAT'S the difference between a Euro-pragmatist - Eddie George's description of himself - and a Euro-sceptic? The Governor's doubts about the wisdom of the single currency project, at least for Britain and for now, are well-known, but his explanation of them before the Treasury Select Committee yesterday was fascinating.

His argument runs as follows. There have been huge strides towards achieving the fiscal and monetary convergence required by Maastricht, essentially because all the wannabes have adopted a stable and cautious macroeconomic policy. Unfortunately, there has not been the same kind of microeconomic convergence, in the structure of jobs, goods and capital markets. Both kinds are necessary for the success of the Euro.

For the Continental economies, the external discipline of the Maastricht Treaty forced sound macroeconomic policies on sometimes reluctant politicians. They wouldn't have bothered if they hadn't wanted to join Emu. Mr George noted that many of his counterparts across the Channel think the external pressure will be needed to force structural reforms too.

In other words, if their countries don't join, they will never get round to sorting out the supply side of their economies.

But the Governor believes we do things differently here. We Brits, he suggested, are a bit bolshy about external discipline. We have good policies because we want them. If that delivers convergence, fine. If not, we should carry on regardless and wait for the others to converge on us.

There is obviously something in this argument, as the UK has both met the formal Maastricht criteria with ease and accomplished a lot on the structural reform front without being driven by the urge to join the euro. Both kinds of convergence are certainly desirable. But it does not add up to a convincing case for not joining the Euro until every other member has matched British standards.

One reason is purely practical. Now the last serious hurdle has fallen, with yesterday's decision by Germany's constitutional court, Emu will go ahead and the benefits of the huge Euro market, with all the likely industrial restructuring, will be captured by first wave members. The other reason is that the British dislike of external disciplines identified by the Governor stems from having failed to meet them in the past. The disastrous membership of the ERM is the classic example. Joining the Euro ought to hold no fears for the UK now that both macro and micro-economic policies are as good as, or better than, Continental standards. But it remains a question of whether the economic risks of joining are outweighed by the political risks of staying out. Even the Governor's eloquent testimony cannot definitively answer that one.

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