I believe that it would be disastrous if any British government, Tory or Labour, ruled out joining a single currency. There is a strong economic and political case for Britain joining the European single currency. A single currency would save the foreign exchange and other transactional costs, amounting, according to the European Commission, to more than 15 billion ecus a year, equivalent to a trade tax for the UK of pounds 3bn per annum, a cost which falls disproportionately on exporters and small businesses.
The crucial benefit, however, is the contribution a single currency would make to monetary stability and to economic growth. Interest rates should be significantly lower because the risk premium attached to weaker currencies would no longer be necessary. Lower interest rates and a more stable economic environment would encourage more investment and trade and so stimulate extra growth. An authoritative study by Christopher Johnson, published last week by Penguin, estimates that the annual net gain for Britain from membership of the single currency would be a 0.5 per cent increase in the rate of growth, which would accumulate over 10 years to 6 per cent of pounds 42bn.
In any case, the question for any British government is likely to be not so much, in principle, whether a single currency is a good thing, but whether if France and Germany - along with Austria, the Benelux countries, and certainly one or two Scandinavian countries - go ahead with a single currency, Britain can sensibly stay out. It would be foolish for any British politician to underestimate the commitment to the single currency project by the overwhelming majority of the political and business class across the Continent. It is increasingly likely that the 1998 deadline will be met by a critical mass of countries.
Imagine what would happen if the next British government announced that it had decided to stay out. Markets would assume that our decision-makers were wedded to currency depreciation. As a consequence, British interest rates would also have to rise still further. Already the cost to the British taxpayer of the risk premium demanded by the markets is of the order of pounds 5bn-pounds 7bn. Higher interest rates would harm growth and employment.
Britain would lose influence in the development of the single currency and probably other key European issues if we decided to stay out. The probability is that, even if we did decide to stay out, the markets would force Britain to join in humiliating circumstances, instead of a time of our own choosing - hardly the right environment for seeking the public support for British membership to which both Conservatives and Labour are committed.
The Conservative government and the Labour opposition must stand firm on their present policies of keeping the option of Britain joining the single currency. As regards the Labour leadership, it may be justified in being publicly cautious about entry. But behind closed doors, it should be planning for membership. And it should back the TUC's bold campaign to explain the advantages of a single European currency. Otherwise, the Euro-sceptics could steal a march in winning over public opinion.
The writer is MP for Durham North (Lab) and chairman of the European Movement.Reuse content