Why Cook is wrong

Christopher Haskins on reaping the benefits of monetary union
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The Independent Online
The debate about the Single European Currency must concentrate on two distinct possibilities: the impact of Britain joining at the outset but, equally important, the consequences of Britain remaining outside after EMU comes into existence. In my view, the positive benefits of joining EMU are not sufficiently recognised and, more critically, the harmful effects of remaining outside are seriously underestimated.

The case for joining EMU must be based on strong economic criteria. Britain must join EMU only if it has been well structured and has the confidence of the financial markets. It is inconceivable that the project will get off the ground without such confidence.

In these circumstances our increasingly volatile currency and our tendency to resort to devaluation and inflation, which has meant that our interest rates, even today, are one and a half points ahead of Germany, would immediately be stabilised. This would bring savings for mortgage holders, private sector companies and borrowers of all kinds. Taxpayers would also benefit because they would be paying less to service government debt - amounting to some pounds 10 per household per week.

Next, companies would no longer be required within EMU to pay commission to change currencies, and we would no longer need to operate in derivative markets to hedge against future currency changes.

If EMU becomes a reality and Britain decides to remain outside, the negative effects would probably exceed the benefits of membership which I have just outlined.

It is understandable that people such as Robin Cook are anxious about some aspects of membership of EMU, but when he argues that by remaining outside we can retain our right to devalue and thereby remain competitive he is surely mistaken. The markets would conclude that, if this is the reason for remaining outside, they would have no confidence whatsoever in the stability of sterling from the outset. The government of the day might therefore be forced into an immediate devaluation, which would create inflationary pressures and probably trigger a negative reaction from those European countries that had joined EMU. If the government chose to protect the currency, it would have to raise interest rates sharply, thereby hitting private and corporate borrowers and increasing taxpayer liabilities.

The only sensible course for a British government is to continue to apply a macroeconomic policy which ensures low inflation and sound public finances. This means effectively following the criteria laid down at Maastricht as a precondition for EMU. We would thus end up in the absurd position of complying with the criteria of EMU, without enjoying the advantages of membership, including the ability to influence monetary policy within EMU.

The establishment of a Central European Bank, an essential part of EMU, inevitably implies a reduction of our sovereign influence over monetary policy, though this sovereign power has in reality been already massively reduced over the past 50 years. However, by remaining outside EMU, but still a member of the European Union, we would abandon virtually all influence over our monetary policy.

Few would argue that Britain has attracted significant inward investment from Asian and North American companies solely through its membership of the European Union. Our financial institutions, our language and many other factors appeal to would-be investors.

But what would happen if Britain were not a member of EMU, thereby creating financial uncertainty and serious doubts about our long-term commitment to Europe? Surely foreign companies would then much prefer to invest in countries that are members of EMU rather than one which is outside. Thousands of British jobs would be lost as a result.

Finally, for those who take the line that EMU is a good idea for Britain, but not yet, I would suggest that it would be much more difficult to join later rather than sooner. If, by remaining outside, Britain loses competitiveness compared with those who are members of EMU, then it will be even harder for us to join the party at some later stage.

The achievement of EMU will not be easy for any country - that is widely recognised - but the historic momentum of the European movement will probably mean that a single currency will become a reality during the course of the next British parliament. It will take great political courage for a new government to decide to go ahead with its main European partners in this venture from the outset - but doing so would still be the right decision. To take the more timid option of delaying would be to store up much greater economic and political problems at a later date.

The writer is chairman of Northern Foods.

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