Iain Duncan Smith: It's time to put the tanks on Labour's lawn


On Tuesday, euro notes and coins will become legal tender.

On Tuesday, euro notes and coins will become legal tender. No doubt this will be used as an occasion for hoop-la, razzmatazz and predictions of well-being as governments across the Continent ring out the old and ring in the new. That said, we wish our neighbours well. As with the US, the EU is an important export market, so our interest in a buoyant continental economy is not entirely attributable to seasonal goodwill.

Yet it is worth remembering that the euro has been operating for three years now. Some, perhaps more cynical observers, will recall a similar fanfare and predictions of economic nirvana three years ago – and warnings that Britain would suffer from being outside the euro. With hindsight, both sets of predictions proved wide of the mark. But that hasn't stopped the Government, the TUC and others from issuing the same incorrect warnings they issued then.

It is entirely predictable that our own image-obsessed government should scent the possibility of free PR for its own campaign to take Britain into the single currency. Indeed, the spin has begun already. Last week the Minister for Europe, Peter Hain, took to the newspapers and the airwaves to insinuate that it is inevitable that Britain should join the euro if we are to avoid relegation as an economic power. I predict more where that came from. It's another attempt to obscure substance with spin; because nothing will happen on 1 January that goes anywhere near making the case for British membership.

If the Government wants a serious debate about the euro it should start with issues of fundamental importance. The argument is about very much more than notes and coins. It is about whether we retain the ability to control our own economy. Everybody agrees that one of the key elements of this is the ability to set interest rates according to prevailing economic conditions. Yet the Government refuses to explain how it can be to our advantage to have British interest rates determined by the conflicting demands of every member of the euro.

Since the introduction of the euro in January 1999, eurozone interest rates have taken a different path from that praised by the Treasury as being in our interests of the British economy. For Britain to have followed that path would have seriously damaged our economy. You only need to think back to the Exchange Rate Mechanism to recall the damage that can be done. That is not surprising: the European Central Bank has to take into account the conditions prevailing in the eurozone as a whole, not in a single country.

The fact is that conditions in Britain are never likely to coincide with those of every other member of the euro. The structure of our economies is different. A higher proportion of our trade is with non-EU countries than is typical on the continent. So the state of the global economy has more bearing on us. At present, our interest rates can accommodate this. Over recent months the Bank of England has reduced interest rates earlier and faster than has the European Central Bank. They can't both have been right for Britain, and the Treasury has backed the Bank of England.

Differences in our economies don't end there. We have many more homeowners in Britain than is typical on the continent. So they are more sharply affected by changes in interest rates: something that the Central Bank should be able to take into account. And unlike our continental neighbours, we in Britain have made adequate provision for future pensions, whereas these other countries face huge future demands on taxes or borrowings to pay for tomorrow's pensioners. If we were part of the euro their problem would become our problem. We would either suffer an interest rate inflated by continental borrowing, or, as the German finance minister has said, contribute to a Europe-wide tax.

By abolishing the pound, Labour would permanently blight our competitiveness, because we could never again rely on interest rates being set which are right for the conditions we face. And we would see taxes, as well as interest rates, taken progressively out of our hands, because everyone knows that a true single currency requires a single tax system.

The Government is no clearer on what exchange rate it considers would be acceptable for Britain to enter the euro. Many British manufacturers regard the devaluation of the euro since its inception as another burden they have had to bear, along with higher taxes and more regulations from this government. Until last year, ministers were prepared to say explicitly that the pound-euro exchange rate was too high for Britain's manufacturers and exporters. Lately they have been more circumspect. I recall similar confusion on the competitiveness of the exchange rate at the time of ERM entry.

If the Government is prepared to use 1 January to advance the case for euro membership, it should take the opportunity to clarify whether it still regards the current exchange rate as a bar to Britain's entry, and if so, what rate it considers to be acceptable.

If the Government wants 1 January to mark the beginning of a clear campaign to take Britain into the euro, so be it. But to do so requires real answers to real questions: questions that glitz about paper money cannot be allowed to obscure. With the economic case against euro membership so clear, the Prime Minister and other proponents have resorted to spin. They peddle dated clichés about Britain being "left behind".

When all the arguments fail, they rely on that last refuge of people who lack confidence in Britain: the lie that we might as well go along with it because it's all inevitable anyway. That is the weakest argument of all. Those of us who remember the 1970s recall the similar claim then that Britain's economic decline was inevitable, that we were doomed to mediocrity. Conservatives refused to accept it. Instead we turned the economy around to become the fourth largest in the world. We refused to accept it then, and I refuse to accept it now.

The Prime Minister lacks the courage to back up his stated desire to join the euro with clear argument. Instead he relies on furtive manoeuvring to bamboozle the British people. He makes a grave mistake in insinuating that it is somehow extreme to remain outside the euro. Since when was the extreme policy to want to keep your own currency, as the vast majority of British people want, rather than to abolish it as the Government is desperate to do?

He has started the phoney war, but he will find that he has taken sides against many of his own supporters. When the referendum comes, everyone who shares our confidence in Britain's future will join together in a popular coalition to safeguard our prosperity. He will find that the British people will put their tanks on to his lawn.

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