Eurozone economies perform 'poorly'

Economies in the eurozone have suffered from the "one-size-fits-all" interest rate imposed with the introduction of the euro, MPs were told yesterday.

The performance of the eurozone economies had been "disappointing", after they were hit harder by the global economic downturn than Britain and the United States, Hamish McRae, associate editor of The Independent, told members of the Commons Treasury Select Committee.

He warned that the eurozone was "likely to continue to perform relatively poorly by the standards of North America for the foreseeable future".

Mr McRae told MPs the real experience of eurozone economies was more important than the Chancellor's five tests in determining whether Britain would join the euro, warning that Germany's problems adjusting to a single European interest rate might force it out of the euro.

He said: "The mathematical need to set a single interest rate for a region with different inflation rates means that some countries, in particular Germany, have an interest rate that has been too high, while other countries have rates that are too low."

He said that the European stability and growth pact, which governs government spending and debt in the eurozone, would make it difficult for governments to compensate for European Central Bank interest rates, which would inevitably be too high for some countries in the zone.

Mr McRae was giving evidence alongside observers including Andreas Whittam Smith, founding editor of The Independent; Anatole Kaletsky of The Times and The Observer's William Keegan.

French complaints, page 13