George Foulkes: Advice to Blair: Ignore Brown, join the euro

The issue is so important that the judgement of one man cannot be allowed to stand in the way

As Gordon Brown prepares for his statement on the euro in the next few weeks, I hope that the Chancellor, like me, will learn the lessons of the past few decades. I fear, however, that he will draw the wrong lessons. This issue is so important that the judgement of one man cannot be allowed to stand in the way, and that if he is against then the Prime Minister should overrule his Chancellor for the sake of the economic wellbeing of the British people.

Every Labour government in my lifetime – up until now – has been destroyed by a crisis of confidence in the currency markets.

In the early 1950s, Clement Attlee's administration was ripped apart by a dispute about the consequences for sterling of paying for the war on Korea. In the 1960s we were traumatised by the devaluation of 1967 and the crunch for public spending that followed. And one can be sure the letters IMF are burnt into the heart of every Labour member – including me – who was active in the 1970s.

So far we have avoided these problems this time round but it would be madness to pretend they have gone away when, in fact, the risks of a sudden currency crisis have actually increased.

Today we are running an Edwardian monetary policy – a freely exchangeable pound – in a 21st-century market-place, where currency dealers exchange sums the equivalent to the total of our GDP every day. The longer we persist with this approach, the more power we are handing over to the speculators. My objection is not that speculators are the vanguard of the counter-revolution or a bunch of fascist hyenas out to destroy Labour. Their attack will be based on one thing, and one thing only: they will make money from it.

Joining the euro will not remove the risk of a speculative attack on our currency. But it will do two things. Firstly, it will make one far more difficult. The markets are powerful, but given the scale of currency trading, speculative attacks have to reach a tipping point before they make an impact. This level is higher for the euro than sterling.

Secondly, they will simply matter less. Today a bout of speculation will hit every exporter or importer in Britain as 100 per cent of our external trade is with countries with a different currency. If we joined the euro, that figure would be halved overnight.

This ought to be reason enough for any democratic socialist to take a positive attitude to the euro. So why is it that a small, but disproportionally influential, group of Labour MPs is so opposed, and why do these people seem to be in danger of winning the argument with the Government?

In the end, the conclusion has to be that this has become solely a question of politics – and bad politics at that. Deep at the heart of government, somewhere in No 10 or No 11, there is a profound reluctance to take on a 30 per cent opinion poll deficit, to challenge the Murdochs, the Blacks and the Rothermeres and to press the case that, whatever we think of their foreign policies, strengthening our trade with France and Germany is fundamentally in our interests. They seem to have forgotten we are at our best when we are at our boldest.

Of course, if the Government were to conclude we shouldn't join, it would frame its arguments in terms of economics. But such arguments hold little water.

Let me deal with the easy one first – the suggestion that because the average growth on the Continent is lower than in Britain, we should not join the euro. Certainly some euro countries, Germany in particular, are suffering. But that has nothing to do with the euro. The problem is a structural one, unrelated to the level of interest rates, and reflects a long-term hangover from reunification. In any case, German weakness actually strengthens the case to join, as that way we can maximise our advantages today and seize the opportunities tomorrow when the German revival comes.

So too with the argument that the euro economies are too inflexible. So what if they are? If French or Spanish labour laws weaken their ability to compete, that is no argument for lumbering our exporters with the disadvantage of a separate currency.

What matters is the flexibility of the British economy, because that will determine our ability to withstand economic shocks. And on just about every measure we are not just flexible today but getting more flexible. Long-term unemployment has been tackled and the Government has made consistent efforts to make it easier to bring new ideas and businesses to the market.

Finally, there is the question of interest rates. Surely, argues the opposition, we must agree that one-size-fits-all interest rates would do us irreparable damage. But again, there is no economic evidence to back this up.

Engineering firms in my constituency in Scotland already have to live with a uniform UK interest rate. They have no reason to fear a European-wide rate. In any case the differences are already minimal – 1.25 per cent at the short end, nothing at the long end – and there is every reason to expect the gap will narrow further when we announce an intention to join.

Our economy is flexible enough to allow us to join. It's time our politics was too.

The author is former minister at the Department for International Development, 1997-2001