Why we say Yes to a single currency

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In Paradise Lost John Milton described Hell as containing a furnace, but "from those flames no light, but rather darkness visible". So far the flames of the European debate have shed a remarkable amount of gloom upon the subject of the single European currency. Kenneth Clarke's brave and intelligent speech this week has helped to dispel some of this fog and kickstart the real discussion. As the debate unfolds readers of this paper will, of course, make up their own minds. This is what we think:

There are good reasons for wanting further European integration. You do not have to be French to believe that containing Germany within a close European family makes sense. But flourishing the Euro-ideal is not enough. The decision about the single currency must be a matter of hard-headed practicality - it must be seen to make sense.

The economic arguments that, on balance, Britain will be better off inside the currency union than outside are persuasive. The discipline of a permanently fixed exchange rate would significantly reduce the risk of a return to high inflation and create greater certainty for companies and investors. There would also be lower transaction costs. There is no doubt that a successful single currency would strengthen Europe's position on the global economic stage.

The opponents of the single currency do not agree. They argue that the experience of the ERM and events since Black Wednesday show that to be locked into a single currency is damaging. Exchange rates, they point out, can act as important "shock absorbers" in times of unexpected crisis. These are powerful arguments. They are most powerful when applied to some EU members - notably Spain, Portugal and Greece - whose less developed economies would make the exigencies of a single currency regime punishing, unpopular and potentially disastrous.

But this is not the condition of Britain today. In 1992 the needs of the British economy were at odds with the priorities of the Bundesbank. They were trying to control inflation, we needed to get out of recession. By contrast, in 1999 six or seven countries will find themselves at the same stage in the cycle, with very similar economic priorities. So things are likely to be different.

What the ERM experience does show, however, is that it would be foolish to shackle Britain to other economies facing very different problems and priorities. That is why both Mr Clarke and Mr Blair are right not to regard the Maastricht convergence criteria as Holy Writ. Convergence should not be a technical question, where if the figures are right for a period, entry becomes automatic. It is rather a question of direction, timing and common sense. If the wrong countries are involved, or if our circumstances change, then we may not want to join. No final decision on entry can be taken until we can examine the details at the time.

This all sounds very cold-blooded set against the question of sovereignty. Would the British government lose some of its discretionary power under a single currency? Yes. But it would still decide forms and levels of taxation and expenditure. The single currency of itself has no implications for foreign, defence or social policy. But let us not fool ourselves: it does expand even further the area of "pooled" sovereignty, already established at Maastricht and elsewhere. That is one reason why institutions that scrutinise the EU, such as the European Parliament, must be strengthened. It is why subsidiarity is so important.

And that is also why there must be a referendum on the issue, forcing the politicians to bring the debate to the doorstep. Nothing else will confer the necessary legitimacy on the final decision. A "yes" vote would empower Parliament to take us into the single currency when it was convinced that the circumstances were right. A "no" vote would keep us out.

Of course this newspaper hopes that the answer would be "yes". Milton's Satan felt that it was better to reign in Hell than to serve in Heaven. We do not agree.

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