Our best protection against 'boom and bust' is to join the euro

Click to follow

The clouds of economic gloom seem to be gathering over Britain, but the view does depend on where you are standing. It is a shame that jobs will be lost at Dagenham but, in a dynamic market economy, old jobs will be lost and new jobs created all the time. If the balance is shifting slightly away from job-creation and in favour of job-destruction, that is awful for the individuals concerned, but it may not be a bad thing for the economy overall, which needs to slow down now to avoid running into greater difficulties later.

The clouds of economic gloom seem to be gathering over Britain, but the view does depend on where you are standing. It is a shame that jobs will be lost at Dagenham but, in a dynamic market economy, old jobs will be lost and new jobs created all the time. If the balance is shifting slightly away from job-creation and in favour of job-destruction, that is awful for the individuals concerned, but it may not be a bad thing for the economy overall, which needs to slow down now to avoid running into greater difficulties later.

It is tempting to see the sale of Rover, the end of car-production at Dagenham and the deflation of the dot.com bubble as heralding a wider downturn that could damage the Government's hopes of re-election in 12 months' time. The other side of the picture is continued strong growth in some sectors and - admittedly a lagging indicator, this - some silly housing-price rises reminiscent of the late Eighties.

What is more, if the pound is starting to fall, both against the dollar and the euro, that will only stoke the inflationary fires, and the risk was already that future inflation was creeping up.

Of course, it is not so much the pound that is falling as the rest of the world that is rising. Although the European Central Bank wisely left interest rates unchanged yesterday, rates in Europe and the US are set to rise to restrain strong growth. The ECB judged that, in the present strange mirror-world of the foreign-exchange markets, a rise would be seen as an attempt to prop up the euro and therefore have the opposite effect. But growth in the euro-zone is picking up sharply.

Which means that the British and Continental cycles are about to cross over this autumn, as we slow down and they speed up, which would, of course, be a good moment economically for Britain to adopt the single currency.

The argument that the Government's test of "convergence" can be met only when the British business cycle is in sync with that of the euro-zone is a red-white-and-blue herring. It is simply an excuse for not joining. Several euro-zone countries were out of sync with the majority when they locked themselves into the single currency in January last year, most notably Ireland, which was following the British cycle.

The fact of Britain's impending accession will accelerate the process of convergence as soon as a date is put on it. That is what Tony Blair and Gordon Brown should do. Obviously, they cannot set a date and win a referendum by this autumn. But they could still aim to lock the pound to the euro at the end of 2002, say. They should forget about not wanting the currency issue to cloud the general election campaign. As long as there is a referendum, it is a separate decision for the people to make. By setting the target date now, they could start to change the dynamics of public opinion. But it would also be the right decision to steer between the rocks of inflation and recession in two or three years' time.

Joining the euro is our best protection in the long term against "boom and bust". It is the best guarantor of future prosperity. And it is also the right future for Britain as a modern, outward-looking and confident country.

Comments