UK should adopt euro – but not yet
By Robert Harris
THE euro is far from a flawed currency, and there are good intellectual reasons why the UK should eventually adopt it, Dennis Turner, HSBC chief economist, told a recent Sentry conference – Farming 2000.
But many farmers who would welcome economic and monetary union, to end their exposure to volatile exchange rates which have slashed the value of subsidies and cut the cost of imports, will have to be patient.
"The • has had a terrible press, said Mr Turner. "It is weak, because Germany and Italy are in recession. But they will recover."
Gross domestic product a head in the EU 15 was also under-performing, said Mr Turner.
Once the EU rid itself of this "eurosclerosis" by pushing the single market, the UK could not afford to be left on the sidelines, said Mr Turner. However, the UK government would not want to risk economic stability , he added. "Take Gordon Brown at his word – boom/bust is a thing of the past."
Inflation had remained below 3% for the past eight years and was currently the lowest in Europe, a "staggering" achievement. The UK had a budget surplus of £5bn, and just 4.5% were unemployed. "This is as good as it gets," he said.
Only when the UK and eurozone business cycles converged would the government want to join, to avoid a huge inflationary spiral stoked by a housing market underpinned by cheap credit.
"If we are going to join painlessly, we have to see a natural coming together of interest rates. That is more likely to happen when eurozone rates rise to 4.5-5%, and it is some way off yet."
That convergence would also take some heat out of the £. "There is a very good argument for saying the £ is overvalued. But to say the £ should be worth the equivalent of DM2.30 is pie in the sky. But we cant take it seriously until we are around the DM2.90 mark." *