Kenneth Clarke: Why is Mr Brown the key figure in the euro debate?

Tony Blair has made the mistake of allowing his Chancellor to take the dominant role over the referendum
Click to follow

The problem of the euro has become the problem of Gordon Brown. Tony Blair has made the mistake of allowing his Chancellor to take the dominant role in determining whether and when the referendum will take place.

The problem of the euro has become the problem of Gordon Brown. Tony Blair has made the mistake of allowing his Chancellor to take the dominant role in determining whether and when the referendum will take place.

This is a frustrating and faintly absurd position for everyone who wants Britain to make the right decision on the euro. Gordon Brown has made himself the key figure in the whole debate. No referendum can be called until he says so and no referendum can be won unless he joins in the "yes" campaign with some enthusiasm.

Brown's political position may be honourable. I have always believed that his underlying opinion is similar to my own. He says that he is in favour in principle of Britain joining the single currency. He made some sensible announcements in his last Budget about looking at the possibility of adopting the EU measure of inflation in place of our own flawed RPI and studying ways in which we might encourage fixed-rate mortgage finance for house purchase. He argues for liberal economic reform and more flexible labour markets across the EU, which are very desirable.

His enemies see darker motives. I regard Gordon Brown as my political opponent and I am a strident critic of his fiscal policies. But I do not regard him as a personal enemy and I have to admit that I rather like and admire him. I therefore discount the theories I hear from his enemies within the Labour Party that, for instance, he has decided that he will need the support of Rupert Murdoch to have a successful premiership.

I judge that he is suffering from quite uncharacteristic hesitation and indecisiveness. He seems inclined to push off a difficult decision into the uncertain future.

The economic case for the euro is always going to be subject to genuine debate. Distinguished economists line up on both sides, although I personally think that the best heavyweights are on the pro-euro side. Pro-Europeans like me believe that in the long run the upside consequences for Britain will far outweigh the downside. Britain's economy will be damaged if we stay out too long, but the effects, in terms of lost growth in trade and investment and lower rates of GDP growth compared with what we might otherwise achieve, will not be sudden but will take years to show.

It would be a mistake to join in the wrong economic conditions but Gordon is wrong if he believes that we can wait for some perfect combination of political and economic circumstances in which every expert is agreed that the time is right and every critic is silenced.

The Irish joined the euro at a time when they had to reduce their interest rates sharply. Every British euro-sceptic predicted that they would suffer an inflationary disaster as a result of the "one size fits all" interest rate policy. The Irish economy has continued to thrive inside the euro-zone and it continues to outperform the British economy.

The slow pace of economic reform inside some continental countries, particularly Germany, is a much bigger problem for them than it is for the British. It gives us a competitive advantage over them inside the single market, as it would within the euro-zone. We would benefit if our French and German markets could return to higher growth, but their domestic problems are no more a reason for staying out of the euro than they would be for leaving the single market. Germany's problems are not caused by the single currency nor the policies of the European Central Bank.

Our economy is now more convergent with the major economies of Western Europe than ever. I have always said that the exchange rate made it impossible to join in recent years but the euro has now strengthened enough to remove that problem. Indeed there is a danger that if the pound devalues further we will see a return of the problems of inflation in Britain.

The arguments in favour of the euro that Gordon Brown has always agreed with, in terms of an end to exchange-rate risk, improved competitiveness through price transparency and a boost to productivity, remain as strong as ever. If the Chancellor wants to make the case for further delay he had better have strong arguments.

I look forward to reading the Treasury studies and it was a good idea to commission them. However my old colleagues in the Treasury cannot be expected to produce tablets of stone to settle the issue. They will produce high-quality analysis, but different civil servants will privately hold different views about the final decision. They are capable of providing the Chancellor with the best arguments in support of whichever answer he decides to give.

If Gordon Brown pronounces that we must continue to "wait and see" he must describe the next steps in the process and the broad timescale within which this is to be concluded. Timeless uncertainty is damaging to Britain's interests. Everyone who agrees in principle that it will be in Britain's interests to join believes that we are very near to the time at which we should decide. Even hard-line euro-sceptics are demanding a referendum now to end the uncertainty.

Gordon Brown has manoeuvred himself into a position where one man has too much power in his own hands on this subject. He will burn his fingers very badly if he does not at least indicate that we are almost ready to take the big decision in Britain's national interest.

The author was Chancellor of the Exchequer, 1993-97