Outlook: Euro bashing
Thursday 24 June 1999
IT HAS been a good few weeks for the Eurosceptic cause. First the European elections, then Tony Blair with his comment about the daftness of British entry, and finally the admission from ultra sensible Steven Byers that it would be "very difficult" to win a referendum on abolishing the pound.
Now the Eurosceptics have another unlikely ally in Paul Krugman, the star US economist. Professor Krugman is in London this week and he cites three main reasons for staying out of the single currency. First, the Bank of England has done a good job running a separate monetary policy, undermining the argument that the UK would only ever attain low inflation by submitting to external discipline.
Second, the ECB is making a hash of it. It has no institutional experience of how to do monetary policy because most of its officials just used to do whatever the Bundesbank said.Worse, they have kept policy too tight at a time when weak growth and falling prices makes fighting the traditional battle against high inflation inappropriate.
Finally, Professor Krugman believes the big Continental economies show scant sign of introducing the structural economic reforms needed to stimulate long-term growth. Economists do not come any cleverer than Professor Krugman, but his arguments may not seem so compelling three months hence. The big economies are already beginning to turn up again as a result of low interest rates and a weak currency. The euro will be rising later this year, perhaps by enough to make this bend-with-the-wind Prime Minister change his mind a third time.
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