Eddie George conceded that it would be "an act of faith" whenever Britain joined the European monetary system and it was too early to assess its success or failure. "The jury is still out," he told the House of Commons sub-committee on employment.
But Britain's central bank took issue with the suggestion that our economic cycles were more in line with North America than with the Continent and the implication that our future lay outside Europe.
Mr George said an increasing proportion of Britain's trade was with the Continent and that would serve to bring business cycles in the United Kingdom in line with the rest of Europe. He said Britain and the euro- zone were already being "drawn together" and indicated that such a trend would be more conducive to Britain joining the euro system.
In line with ministerial statements - and at variance with the Europhilia of the Liberal Democrats and the Euroscepticism of the Tories - Mr George said that the Government would be better able to assess the risks of joining the euro in "a couple of years". He said that the system had been hit severely by last year's economic shocks from the Far East and that some countries in the euro-zone had been particularly exposed to the region.
Mr George told MPs that it was "tremendously difficult" to predict how the euro-zone's "one size fits all" approach to monetary policy would suit Britain. It was impossible to know what the right rate of exchange would be for Britain to join the system. However, if a mistake was made it would be "pretty painful", he said.
He said the approach of the European Central Bank - to maintain price stability - was fundamentally the same as that of the Bank of England, but there were differences. The British central bank would attempt to deflate the economy to move inflation down to 2.5 per cent and to boost it if the target was undershot. But the ECB has no concrete policy if prices on the Continent were growing slower than the euro-zone's 2 per cent objective.
Business, page 23Reuse content