23 April 1999

Economists say is good for us

Most economists agree about one thing – the

euro will be good for Britain. Agriculturally

speaking, the theory looks fine, but it is still

early days, says Europe editor, Philip Clarke

ECONOMISTS have a well-earned reputation for being indecisive.

Stretch a thousand of them end to end, the saying goes, and they still wont reach a conclusion.

It is perhaps surprising, therefore, to find such broad agreement on the subject of the k.

A survey in this weeks Economist shows that two-thirds of the countrys leading economists believe it is in Britains interest to join the single currency within the next five years.

The arguments for and against are well rehearsed.

The europhiles point to the benefits of stable exchange rates, which create a better trading environment by reducing both currency risk and transaction costs. Countries signed up to the single currency will also enjoy more transparent markets, reduced interest rates and lower inflation, they argue.

Meanwhile, staying outside the k may jeopardise the UKs impressive record for attracting overseas investment, and deny us the opportunity to influence financial decisions made within the euro-zone.

But the europhobes believe the system is too rigid, with a single interest rate failing to address the needs of different member states. A rate rise may be necessary to calm the booming economy of Ireland, but what about the effect on the UK housing market or German unemployment?

The traditional answer is that people will relocate to ease the strains. But the europhobes say labour markets are too inflexible and the single currency will lead to regional unemployment. This, in turn, could result in higher taxes.

On one thing the economists agree. Joining the k is a step into the unknown and, as such, carries an element of risk.

farmers weekly has consistently taken the view that, from an agricultural perspective, it is a risk worth taking. Considering the importance of exports to the sector, anything that boosts trade and irons out some of the volatility seen in recent years is welcome. And given the significant burden of debt on the industry, the prospect of lower interest rates must be attractive.

Recent surveys have also shown the extent to which farmers are being overcharged for their chemicals and machinery. A more transparent market would help put the UK on an equal footing with its Continental competitors.

But entry to economic and monetary union must be at the right level of the £ to the k and so far the trend has not been encouraging.

A combination of euro-zone interest rate cuts, the mass resignation of the European commission and, most recently, the fall-out from the war in Kosovo have all conspired to weaken the k.

Were the UK to join at todays rate, (of about 66p to the k, instead of the 75p most economists view as "appropriate"), then agriculture would be saddled with uncompetitive exports, highly aggressive imports and a depleted value of direct income aids.

Developments so far would, therefore, seem to strengthen the case of the europhobes. Certainly the fall in the value of the k has been dramatic.

But it should be remembered that the new currency is only four months old and, in that short period, there have been some pretty dramatic events. The government does not plan to take the UK into the single currency until at least after the next election (presumably in 2002), by which time things could look very different.

The fact is it is still too early to reach any firm conclusions about the merits of joining. This will come as a real comfort to some economists. &#42