Euros case not proven

By FWi staff

AFTER the convincing re-election of a Labour government last June, the debate about joining the Euro is likely to intensify, says Dennis Turner, chief economist at HSBC Bank.

The introduction of Euro notes and coins in the 12 Euro-zone countries will also raise the subjects awareness.

This will make a reality of monetary union, and, at the same time, the UKs non-participation will become more evident.

Much of the debate about the Euros performance in 2001 focused less on whether the currency was flawed, as seen in the early days, and more on the real issues that determine exchange rates – the relative strengths of the Euro-zone, UK and US economies.

In 2001 the Euro-zone industrial sector slid into recession, and GDP growth is likely to halve compared with a year earlier.

But the authorities are being supportive and a loosening of both monetary and fiscal policies in 2001 should stimulate some recovery, although the Euro-zone economies will remain subdued until 2003.

If the decision on UK entry is to be made in terms of the national economic interest, it is worth considering how the UK has performed in recent years relative to the Euro-zone.

Only on the current account (of the balance of payments) does the UK compare unfavourably, forecast at -2% of GDP compared with 0.1% in the Euro-zone during 2001.

The UKs unemployment and inflation rates were less than half the respective Euro-zone figures, and between 1993 and 2000, the UKs GDP grew by almost 24%, a third more than in Euro-zone countries.

All this suggests that the Euro-zone economy continues to under-perform, while the UKs looks to be in better shape.

The Treasury has said that Britains economic interests need to be judged against the central objective of achieving high and stable levels of growth and employment.

But other questions need to be asked, such as the full meaning of “Economic” and “Monetary” Union.

The implications are considerable, and need to be properly addressed by the Chancellor before any decision can be made.

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