The United States and Britain have been closely linked in terms of financial markets for the last half-century. Since the British pound was replaced by the dollar as a reserve currency the United States has had much more economic power worldwide. The Atlanticist cooperation between the US and UK revolves around the same liberal fiscal policies that promote business and do not interfere with unnecessary regulation. The US and UK share many similarities in the world of banking and finance, as London’s West End is very similar to Wall Street. The level of integration between US and UK companies can be seen in both the financial services sector and oil companies. Britain’s economy is heavily service laden much like the United States and this helps to promote transatlantic partnerships because of comparative advantages in these sectors. Also the fiscal growth of these similar economic models with more flexible macroeconomic principles have outperformed the Eurozone over the last few years as, “It would thus appear that liberal, deregulated market systems function incomparably better than the more consensual, but also much more rigid, Continental economies”. Having similar deregulation policies allows transatlantic companies to invest in both economies without having to deal with the strict economic regulations of the EU. Many US corporations have had difficulties acquiring or merging with EU companies because of the fierce regulation levels put in place by Brussels. In the ever-growing world of globalization having the UK as a deregulated, liberal macroeconomic economy independent of the EMU, benefits the United States exponentially.
Entering into the EMU and having to undergo the difficulties of complying with the restrictive treaty in order to adopt the euro would hurt Britain in terms of its growth rate as well as unemployment. Since 2000 the United States and Britain have outperformed the Eurozone in terms of GDP growth by a rate of nearly 50% “from 1999-2003 Eurozone 1.6%, United States 2.2% and the UK 2.2%”. During the same period Eurozone unemployment rates were 8.3% compared to the US and UK levels of 5.1%. In the period following the introduction of the Maastricht Treaty and the Stability and Growth Pact problems with the EMU can be seen, “It is unclear whether EMU’s institutional and political foundations are strong enough to underwrite long-term stability. First, it is now widely recognized that the Stability and Growth Pact not only places pressure on weaker economies, but also no longer coincides with the interests of the stronger ones, including Germany. Since Germany signed the Maastricht Treaty, its unemployment rate has risen from 4.5% to 9%. Germany’s growth rate for 2001 was the lowest of all 15 EU member states”. Under this current climate it seems hardly advantageous for Britain to enter the EU. Current figures for 2006 place the struggles in both France and Germany in present day perspective, as
“Over the twelve months to July 2004, the standardised unemployment rate in France remained at 9.5%. In Germany, the rate was 9.9% in July 2004, 0.2 percentage point higher than a year earlier. In Canada, the standardised unemployment rate was 7.2% in July 2004, 0.5 percentage point lower than a year earlier. In May 2004, the rate in the United Kingdom was 4.7%, 0.2 percentage point lower than a year earlier. In January 2004, the standardised unemployment rate in Italy was 8.5%, 0.4 percentage point lower than a year earlier.”
Both political leaders and the citizenry of the United Kingdom have seen the negative economic affects seen by the implementation of the Euro as currency and henceforth the vast regulation associated with the EMU. With the monetary policy in its current format Eurosceptic’s have commented “that to join the single currency involves the acceptance of important economic constraints, with left-wing critics in particular claiming vindication by the lack of proactive European response to the apparent economic slowdown in the autumn of 2001. The Maastricht Treaty declares that the ‘primary objective of the European Central Bank shall be to maintain price stability’, which, along with the growth and stability pact adopted in 1997, implies demanding economic and fiscal rules”. The Stability and Growth Pact has been continually violated by Germany and France over the last several years, showing the rigidity of the EMU policies that would negatively affect the economy of England. Flaunting the scrutiny of the EMU countries throughout the EU have made their own policy “France, Germany, Greece, Italy, and Portugal are all expected to exceed the 3 percent GDP cap stipulated by the Stability and Growth Pact. While unemployment is still high at almost 9 percent for the euro area, labor utilization has to rise over the long run.” The decision by these countries to eschew the EMU is in direct response to the dire internal problems of slow growth and extremely high unemployment. In the case of Germany and France the continued violations of the Stability and Growth Pact shows the lack of teeth of the EU. These two countries have consistently held that their own national interests will be served over EU interests. Current data for the treatment of the Stability and Growth Pact states,
“Germany, France and Italy, the eurozone's three biggest economies, will flout the rules set by Brussels for budget deficits until at least 2007 as weak growth hits tax revenues and pushes up spending, the European Commission said yesterday. Germany, which has exceeded the 3% of GDP ceiling for four years, is expected to be in the red by 3.3% of GDP unless the new chancellor, Angela Merkel, takes action; France by 3.5% of GDP, and Italy - the Euro zone country with the worst growth record - by 4.6%.”
While the rationale behind the individual countries economic policy may be correct the decision creates a unique problem. Having a unified message displayed by Brussels is extremely important in the development of the EU. As was seen in the previous example of the Common Foreign Security Policy in the case of Iraq the individual countries that make up the EU are certainly splintered to some degree. Unfortunately the EU will not be able to fully come to fruition and power until countries can put aside nationalistic sentiments that still prevail today.
Britain has consistently held the need for the euro to pass the “five tests” as well as a referendum offered to the people. In June of 2003 Gordon Brown “presented a 1,700 page report to Parliament that formed the basis for his assessment of the “five tests”. Only one “passed”; the one related to the ability of the City of London to maintain its competitive advantage in the global financial markets. The other four were deemed to have “failed””. The reality is that the Blair government has only offered tepid support to the idea of having the euro, and under these conditions and the report of Chancellor Brown I see little changing. Also the politically insulated European Central Bank offers no recourse for political action if Britain chose to adopt the euro. Coupled with the political factors the opposition to introduce the euro and enter into a single currency system is too high.
While many negatives for adopting the euro exist, scholars have pointed out the advantages for Britain in such a system. Arguments for Britain’s full entrance into the EMU and the decision to adopt the euro are advocated for in Will Hutton’s “The World We’re In”. His promotion of the single currency system revolves around the strengthening of the British economy by “The beauty of the single currency is that it solves these dilemmas at a stroke. It allows member countries to choose the interest rate they want for the economic area as a whole and stick to it. Interest rates will be predictably lower, allowing business to undertake more investment and long-term borrowing, confident that it won’t run into periods when interest rates will suddenly rise as a result of some fevered currency speculation”. Hutton sees the British pound as trailing behind three currencies, the dollar, the euro, and the yen. He points out the pounds exchange rate crisis, as well as the disastrous problems in the Britain’s important manufacturing sector, as “The pounds loss of competitiveness has exerted a terrible squeeze on all forms of manufacturing so that there are now massive imbalances between shrunken scale of production, high levels of consumption and an overblown service sector”. Hutton points out some valid problems in Britain’s economy but his rationale in thinking that the answer is adopting the euro is wrong. Britain needs to tailor its economic policy to fit its unique and dynamic economy. The economy of Britain is much more similar to the United States than the rest of the Eurozone, and a move into the Eurozone could result in the same problems that Germany has faced in the last decade.
There is no doubt a problems exit in the British economy and government, from a trade deficit caused by its devastated manufacturing sector to governmental problems with the soaring costs of healthcare in a welfare state. This being as it may the UK is better off staying out of the Eurozone and using its liberal fiscal and monetary policies to fix its problems. The current political landscape promotes Britain staying out of the Eurozone, as the Labour party has done little besides rhetoric in its move to become more inline with the “Continent”. With Conservatives gaining more seats in the recent election to voice their “Eurosceptic” ideas, and the 2003 report by Chancellor Brown showing that the euro project failed the “five tests”, the course promoted by Blair of balancing Britain’s role in both UK-EU and UK-US relations will remain the same for some time and Britain will not “take the plunge”.
Works Cited:
Andrews, D. “The Global Origins of the Maastricht Treaty on EMU: Closing the Window of Opportunity,” in A. Cafruny and G. Rosenthal. Eds., The State of the European Community vol. 2: The Maastricht Debates and Beyond, Boulder, Colorado: Lynne Rienner Publishers.
Boltho, Andrea. “What’s Wrong With Europe?” New Left Review 22, July/August
2003.
Boyer, Robert. “Capital-Labour Relations in OECD: from THE Fordist golden Age to Contrasted Trajectories,: In J. Schor and J. Il You, Capital, the State and Labour: A Global Perspective. 1997.
Cafruny, Alan. “The Geopolitics of U.S. Hegemony in Europe: From the Break- Up of Yugoslavia to the War in Iraq,” In A. Cafruny and M. Ryner, eds. A Ruined Fortress: Neoliberal Hegemony and Transformation in Europe, Lanham, Md.: Rowman and Littlefield.
Cafruny, Alan. “Transatlantic Trade and Monetary Relations” The International Spectator March 2002.
Caporale, Guglielmo., and Kontonikas, Alexandros. “The Euro and Inflation Uncertainty in the European Monetary Union.“ Social Science Research Network. November 2006. Pgs. 1-30.
Cassen, B. (2005) “Europe: No is not a disaster,” Le Monde Diplomatique, April. 2005.
Cohen, B. “Global Currency Rivalry: Can the Euro Ever Rival the Dollar?” Global and International Studies Program, Paper Number 8, University of California at Santa Barbara. 2003.
Crouch, Colin. “Introduction: The Political and Institutional Deficits of European Monetary Union,” in C. Crouch (ed.) After the Euro: Oxford: Oxford University Press, pg. 1-23. 2000.
Dumenil, G & D. Levy. “The Economics of US Imperialism at the Turn of the 21st Century”, Review of International Political Economy, 11 (4), pp. 657-76.
Elliott, L. Germany, France, Italy to breach deficit limit. The Guardian. Friday November 18, 2005.
Enoch, Charles, and Quintyn, Marc. “European Monetary Union: Operating Monetary Policy” World Bank. Vol. 33 Number 3. September 1996.
Financial Times “Eurozone Reaping Benefits of Reform” September, p.3. 2007.
Ganssmann, Heiner. “Germany: Capital Flees,” Le Monde Diplomatique, February, p. 13, 2004.
Grubel, Herbert. “The Evolution of the Theory of Monetary Integration.” Global Strategic Management. Vol. 12. 2006. 55-78.
Hale, D. “Could Italy Be the First to Leave the Euro?” European Affairs, Brussels. 2005.
Hauskrecht, A. The International Economy. Indiana Business Review. Winter 2005, Volume 80, No. 4.
Hutton, Will. “The World We’re In”; Little Brown, London, UK. Copyright 2002.
Martin, A., and Ross, G. Euros and European Monetary Integration and the European Model of Society. Cambridge, U.K. Cambridge University Press. 2004.
McAllister, Richard. European Union: An Historical Political Survey. Edinburgh, UK. 2007.
Nugent, Neil. The Government and Politics of the European Union: Sixth Edition. Manchester, UK. 2006.
Paris. OECD Standardized Unemployment Rate Remained at 6.9%. Organization for Economic Co-operation and Development - September 2004.
Parker, G. “EU Attempts to Reform Stability Pact Break Down,” Financial Times, March 9th, 2005.
Patten, C. Cousins and Strangers: America, Britain, and Europe in a New Century, London, Times Books. 2006.
Reid, T. The United States of Europe: The Superpower No-One Talks About, New York, Penguin.
Ross, G. “Monetary Integration and the French Model,” in A. Martin and G. Ross, (eds.) Euros and Europeans: Monetary Integration and the European Model of
Society, Cambridge, U.K.: Cambridge University Press.
Talani, L.S. Betting For and Against EMU: Who wins and who loses in Italy and in the UK from the process of European monetary Integration. Hants, U.K. Ashgate Publishing Company. 2000.
Talani, L.S. “The European Central Bank: Between Growth and Stability,” Comparative European Politics. 3 (2), pp. 204-31. 2005
Tiersky, Ronald. “Chapter 10 Britain: In and Out of Europe?” Europe Today Second Edition by Michael Manning, 1999.
Wylie, L. “EMU: A Neoliberal Construction,” in A. Verdun, ed., The Euro: European Integration Theory and Economic and Monetary Union, Lanham, Md.: Rowman and Littlefield.
Tiersky, Ronald. Europe Today Second Edition. “Chapter 10 Britain: In and Out of Europe?” by Michael Mannin pg. 339
Boltho, Andrea. “What’s Wrong With Europe?” New Left Review 22 July August 2003 pg. 5
Boltho, Andrea. “What’s Wrong With Europe?” New Left Review 22 July August 2003 pg. 13
Cafruny, Alan. “Transatlantic Trade and Monetary Relations” The International Spectator March 2002 pg. 15-16
Paris. OECD Standardised Unemployment Rate Remained at 6.9%. Organization for Economic Co-operation and Development - September 2004
Hutton, Will. “The World We’re In”; Little Brown, London, UK. Copyright 2002 pg. 332
Hauskrecht, A. The International Economy. Indiana Business Review. Winter 2005, Volume 80, No. 4.
Elliott, L. Germany, France, Italy to breach deficit limit. The Guardian. Friday November 18, 2005
Tiersky, Ronald. Europe Today Second Edition. “Chapter 10 Britain: In and Out of Europe?” by Michael Mannin pg. 334
Hutton, Will. “The World We’re In”; Little Brown, London, UK. Copyright 2002 pg. 329
Hutton, Will. “The World We’re In”; Little Brown, London, UK. Copyright 2002 pg. 331