The question of whether Britain should gravitate toward adopting the euro is indeed an enormous one.
The Euro
The question of whether Britain should gravitate toward adopting the euro is indeed an enormous one. It is enormous in that it covers many levels of importance, and its effects can be measured differently according to whom you ask. To some it is a matter of relative insignificance (like the savings in currency exchange when you go on vacation), and to others it is paramount (as in who will be running the country's economy?). I firmly believe that Britain should not adopt the euro although they have joined the EU because doing so renders them powerless in the control of their economic future.
No matter how you look at it or what level of importance you attach to it, the fact remains that Britain is going to have to make a decision about the eventual adoption of the euro. Being a member of the EU, it is imperative that Britain either falls in step and works toward stabilizing the strength of the euro, or makes a permanent commitment to the pound. This would be best for all involved. It would allow the people to make financial decisions that will affect the rest of their lives, or in the case of the alternative, allow them to absorb the changes the new currency will present. Whatever they decide will forever change the face of Britain. Will it be a face that they can live with? Should Britain even bother to change their face? In order to reasonably understand the current euro situation, it is Important that we first realize its origins.
The elected governments of Member States together created and developed the euro, a name that was developed in Madrid and adopted by the European Council in December 1995. Established on June 1, 1999, the European Central Bank (ECB) based in Frankfurt am Main, Germany, aims to maintain price stability and to conduct a single monetary policy across the euro area. The actual euro was launched on January 1, 1999 as an electronic currency used by banks, foreign exchange dealers, big firms, and stock dealers. It became legal tender on January 1, 2002, but attempts to create a single currency go back nearly fifty years.
The best way to illustrate the conception of the Euro is to divide it into three stages. Stage one would have to be the Treaty of Rome (1957), which declared a common European market as the European objective. The goal of this objective was to achieve increased economic prosperity, which would in turn lead to a more united Europe. Stage two would be the Single European Act (1986) and the Treaty on European Union (1992). The two combined have taken the goals of the Treaty of Rome and built upon them. In building upon those goals the Economic and Monetary Union (EMU) was introduced, and the foundations for a single currency were laid.
Stage three began on January 1, 1999 when the exchange rates of the participating currencies were irrevocably set. Member States of the European Union, meeting in the Dutch town of Maastricht, began implementing a common monetary policy, the euro was introduced as a legal currency and the eleven currencies of the participating Member States became subdivisions of the euro. Greece joined on January 1, 2002 bringing the Member States total to twelve. These twelve Member States introduced the new euro banknotes and coins at the beginning of that same year. There were strict criteria for joining the Euro Zone, including targets for inflation, interest rates and budget deficits.
The true birth of the idea of a single currency was a result of the economic crisis of the 1970s that led to the first plans for a single currency. The system of fixed exchange rates tagged to the US dollar was abandoned. European leaders agreed to create a "currency snake" (Grabbe, 1997), tying together European currencies. But the system immediately came under pressure from the strong dollar, causing problems for some of the weaker European economies.
When the twelve Member States converted to the euro it made history. This conversion represents the largest monetary conversion the world has ever seen. The success of the euro is paramount if a true "Europe" is to ever be realized. For this realization to occur, the free movement of goods, currency, people, and utilities must be allowed to take place. Accepting the euro is definitely a step in that direction, but is it a step that Britain should be willing to take?
Britain's conversion to the euro is laced with problems. One problem, which may be simple on the surface but has deep-felt implications, is image or pride. Many people simply do not want to part with the pound sterling, a currency they've known all their lives. Britain's identity rests in the pound sterling, why should they give up their identity? The problem that immediately faces Britain is one of convenience and expense. It will throw up major challenges for the banking and retail sectors that could prove costly in the short-term. As things stand now, Britain is "cyclically out ...
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Britain's conversion to the euro is laced with problems. One problem, which may be simple on the surface but has deep-felt implications, is image or pride. Many people simply do not want to part with the pound sterling, a currency they've known all their lives. Britain's identity rests in the pound sterling, why should they give up their identity? The problem that immediately faces Britain is one of convenience and expense. It will throw up major challenges for the banking and retail sectors that could prove costly in the short-term. As things stand now, Britain is "cyclically out of step with the euro-zone: joining now would be bad for Britain and, bad for the existing members, which are in enough trouble already" (The Economist v. 367 June 14-20, 2003 p. 13).
It will make it easier to travel and do business across Europe, but it also throws up broader questions of convenience and expense to Britain. As was the case in Germany:
"Shopkeepers carry the biggest burden in that they will in effect find themselves converted into the unofficial moneychangers of Britain. This will undoubtedly cost them huge amounts of money- for new tills, staff training and extra security. Probably hardest hit will be small firms that handle lots of cash, like bakeries, markets and convenience stores." (The History Of The Euro, 2002)
This in itself is ironic; because it was the small "domestically oriented" firms who favored joining the euro in the beginning but have since changed their tune (Cooling 2003, p. 59). These are just problems of convenience and being such they are not insurmountable. Member States in the EU have shown us that much. The main issue about European Monetary Union is that all the countries in it will have the same single interest rate and that's one of the things that are causing the real problems for Germany and France at the moment.
Germany and France are prime examples of the pitfalls that go hand and hand with the euro. If the people of Britain want an accurate assessment of the euro at work, all they have to do is look at the state of these two economies. With the economic growth at a virtual stand still and unemployment on an upward climb, major economies such as Germany and France find themselves slipping into recession. This recession in turn has put the two countries in violation of the Stability and Growth Pact (SGP) that governs the euros economic area. The pact states that:
Budget deficits must not exceed 3% of GDP; with a requirement budgets are in balance or surplus on average. Countries that do not adhere to these limits are threatened with fines. It should come as no surprise that slowdown pushes up deficits and has taken some countries over the 3% limit, notably in Germany and France (Arestis and Sawyer, 2003)
The irony is that Germany insisted on the establishment of the SGP so that "countries such as Italy, who place a low priority on fiscal rectitude would not wreck the system." (Smith, 2003) Because their economy is very weak (teetering on recession again), and some of the other Member States are doing rather well, ultimately Germany ends up paying the price. This can all be attributed to the one size fits all policy that must account for eleven other Member States besides Germany.
Britain would have to go in when their economy is growing, and the euro zone economies would have to be growing also- when Britain's goes down, the euro zone has to go down as well. They have to be in very much the same pattern as the euro zone economies if they're going to be able to survive with exactly the same interest rate as all the other countries (Member States) (The Economist v. 266 March 1, 2003 p. 53).
In the event that the British economy was to exhibit little to no growth, financial adjustments could be made to keep the deficit from exceeding the GDP. For instance, the terrorist attack in New York, aimed at damaging the world's leading financial center, severely tested currency markets. Illustrating my point that Britain would do well not to adopt the euro, one year after the 9/11 catastrophe US economist Ian Shepherdson writes:
The euro area is stagnating [...] The European Central Bank has clearly lost the plot. If they want growth, they will have to cut rates - and Europe has tied one hand behind its back with the stability and growth pact. The UK will do better, because it's out on its own. Its relationship with the US is much closer, and its budget position is much stronger; and it has much more flexible labor markets. (The Guardian, 2002)
If Britain were to accept the euro, the option to cut rates would be left to the ECB, rendering the option to control their economic future useless to Britain just as it is to Germany and France today (The Economist v. 266 March 1, 2003 p. 53). This is due to the fact that the fiscal decisions employed by the ECB and sanctioned by the SGP must reflect the universal interests of all the Member States regardless of any one specific economy. This is a distinct instance in which the one size fits all policy would not benefit Britain and ultimately works against them.
In essence, if Britain adopts the euro they would have to exchange the Bank of England for the ECB. This in turn would by default require Britain to accept the SGP instead of employing its own fiscal rules. Why should Britain accept such terms when in both cases the British model is working better. It is a well-known fact that the fixed rates imposed by the ECB would limit the freedom of Britain's government to respond according to the situation. (Irvin, 2003) It's basic Keynesian theory.
In the event of a crisis a flexible exchange rate allows officials to adjust the rate and avoid businesses having to lower wages and cut jobs. If unchecked, the supply shock can cause a chain reaction by lowering the purchasing power of the working class. "This in turn results in more lay offs and wage cuts as aggregate expenditure falls." (Barnikel, 2000) "Eventually a downward economic spiral takes over and the nation ends up in recession." (Whittie, 1997) Adding to the reasons against is the fact that Germany and France have not adhered to the very rules they were so vehement in setting. As a result, smaller countries in turn have had to bear the brunt of that decision, which in and of itself is unfair. Historically this brings to mind the refusal of Germany to make any noteworthy reparation payments in 1921 and 1922, Kane writes:
In December 1922 the Reparation Committee declared Germany in default of its timber deliveries. Although there was no disagreement on the fact that the Germans were guilty of bad faith, the British dissented, reasoning that nothing should be asked of Germany because Germany would refuse and something would have to be done. (Kane, 2002 p. 369)
Ultimately Germany conceded to the terms of the Versailles Treaty, but only in return for economic integration with France and substantial financial support from America.
This leads to a very pertinent question. If Britain adopts the euro where would they fall? It is an important question because it is a potential reality that the political leaders such as Tony Blair and Gordon Brown must face. Recent polls in Germany show that 70 percent would vote to keep the deutschmark while only 29 percent would vote to adopt the euro, and in France 61 percent of women (who do most of the shopping) would keep the franc while 38 percent would take the euro (Doughty, 2003). The economic figures scream overwhelmingly in support of Britain declining to accept the euro. What can be a better gauge of the euros effect on the nation than the actual people who use it? As if that weren't enough there's still the employment factor to consider.
Article three of the Union's Objectives states:
The Union shall work for the sustainable development of Europe based on balanced economic growth, a social market economy, highly competitive and aiming at full employment...(Treaty Establishing A Constitution For Europe, 2003 p.6)
Although this may be the aim of the EU, economist Norman Lamont writes:
increased trade in the euro zone has completely failed to translate into extra growth or jobs. The exchange of goods in itself is not the final objective of policy. The OECD for 2003 expects the euro-zone's unemployment rate to be 8.8% compared with Britain's 5.4%, and economic growth of 1% compared with Britain's 2.1%. (The Guardian, 2002)
As with any situation you must allow time for the stated objectives to take effect, but is that in the best interest of Britain?
It should matter greatly to the people of Britain that theirs is indeed an independent nation. Joining the euro will not put the final nail in their coffin, but it will definitely point the way to their end. The vision of a united Europe is indeed awesome in its pretext, but what about the history and tradition that Britain would be diluting by succumbing to that image. You can't actually dilute history, because it's already happened, it's history in and of itself. A more accurate statement would be changing the face of future generations. I say diluting because it would be just like adding water to a very strong cup of tea. It becomes cooler to the palate, but the strength of the brew is lost. History would suffer the same effect as to its relevance on future British generations.
The overall picture of a united "Europe"would be further enhanced by Britain's addition, the picture that Britain already occupies would become less vibrant and begin to fade altogether. If Britain gives up its sovereignty for the good of "Europe", what will they be doing to their own future? Why give the reigns of your proud country to a European Commission, which will in turn pose limits on Britain regardless of the UK electorate.
The control of the British economy would rest with the European Central Bank, which has to take into account all of the needs of the eurozone countries. They, as is to be expected, will set one single interest rate for everyone. Contrary to popular belief, one size does not fit all. What could be worse for sovereignty than losing control of your own economy? Britain must be an internationalist country, yes. But they must above all be a country. How can they remain a proud independent country if they've lost the power to govern themselves? They will become nothing more than a province of a United States of Europe? Giving their sovereignty to the EU will give the EU more power, but just because it will have a stronger voice, doesn't mean it will be for good.
It is my opinion that The EU would use that power to battle the US in a tug-of-war to gain more trade at the expense of the poor countries of the world. Economists theory says that if Britain joined the EU it would definitely give them a bigger say in world affairs. The lowering of trade barriers among the Member States of the EU and the introduction of a common currency essentially creates a trading block. Trading blocks basically restrict non-members and increase outside tariffs. (The Economist, Sept. 19, 1998 p. 94) Bringing in a major nation like Britain would attract more foreign investment, thus increasing the strength of the trading block.
This attraction of foreign investment would strengthen the position of the EU in a battle with the US to gain more trade. As part of a trading block, Britain could see valuable ties with the US severed. This may prove detrimental because history tells us that Britain does more trading with the US than the Member States within the EU. Smaller countries within the EU would suffer because they can't compete with the bigger countries in promoting an interest of outside investment. They would suffer as well from rapid foreign investment, which would create an overload that they are ill equipped to deal with. Also at stake would be the smaller non-member countries ability to trade with the subsequent increase of outside tariffs.
Giving up their sovereignty will lead to Britain ultimately sacrificing their democracy. Is this such a huge leap? The answer is a resounding no! Perhaps Winston Churchill said it best when he said:
We have our own dream and our own task. We are with Europe, but not of it. We are linked but not combined. We are interested and associated, but not absorbed. (Faiers, 2003)
People who are elected into government to raise taxes and make legislation are answerable to those who pay taxes and live under that legislation. If the taxes and legislation are unpopular, then the people can vote in a new government. If Britain adopts the euro then the taxes will be set in Brussels and most of the legislation will be drawn up there as well. If Britain no longer controls their own economy, because they adopt the euro, then democracy as they know it will be destroyed. Again I quote Winston Churchill when he said: "If Britain has to choose between Europe and the open sea, she must always choose the open sea!" (Faires, 2003)
"Parliament does not [...] have the right to transfer its authority and responsibilities to an unaccountable and irremovable foreign power, and thereby disenfranchise the electorate." (Faiers, 2003) If Britain adopts the euro they would have one member on a board composed of one official from each member state. How does one voice have any effect on a board composed of so many diverse cultures? No matter whom they vote for in Britain they will be powerless to effect any changes. This is an unacceptable trade. Britain should heed the words of Margaret Thatcher, when she said:
We have not successfully rolled back the frontiers of the State in Britain only to see them reimposed at a European level, with a European super-state exercising a new dominance from Brussels." (Faiers, 2003)
Is this the future that Tony Blair wants for his beloved Britain? No matter what decision Britain makes it is going to have a profound effect on the EU, and will forever change the face of Britain. Will it be a face that they can live with? The EU stands to gain much if Britain adopts the euro. It would help to definitively establish it as a formidable economic super-power, and make it one of if not the most powerful trading block in the world. The EU is not waiting for the British cavalry to come rescue it from the evil clutches of economic ruin. It's nothing as drastic as that. But Britain is definitely a welcome guest at a table already full with plenty of economic main courses. The question is: will they be the guest of honor or just another side dish? Based on the blatant economic differences in the nations, the geographic and lingual barriers between Britain and the mainland, the foreign policy contrasts and the gross difference in productivity, Britain would have been wise not to join the EU. They would be even wiser not to adopt the euro as their national currency.
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