Single currency risky, but big gains to be had
Single currency risky, but big gains to be had
By Philip Clarke
AGRICULTURE stands to gain considerably from the creation of a single European currency, though the project is not without risk.
According to Brussels consultant, Brian Gardner, there are several key advantages:
• Price volatility due to currency fluctuations will end.
• Trading agricultural goods will be simpler and cheaper.
• Politicians will no longer be able to meddle with green rates.
Despite this, the UK (together with Denmark, Sweden and Greece) will almost certainly stay outside until at least 2002, Mr Gardner told this weeks single currency conference at Stoneleigh.
These "out" countries would, therefore, require some form of agrimonetary system to avoid trade distortions and prevent income loss to farmers due to currency fluctuations.
In the absence of any proposals from Brussels, it was fair to assume there would be some form of roll-over of the existing scheme, with green £ revaluations when sterling strengthened and devaluations when it weakened.
The danger was that with "in" countries such as Germany no longer worried about the effect of revaluations on farmer incomes, the new system may not offer the same protection, leading to more variable prices and subsidies.
There was also a danger that with sterling outside the Euro, it could attract the attention of currency speculators, leading to further volatility.
But the more likely outcome, Mr Gardner suggested, was that, as a precursor to joining the Euro, government would press on with policies to get the UK to converge with the economic cycles of those in the single currency. This should lead to more exchange rate stability.
"I believe we are going to see an end to the continual fluctuations in farm prices due to the situation with sterling," he told the conference.
That was welcome news for Robin Malim, chairman of farm management company, Velcourt. "We find it more and more difficult to bring logic to our farming activities as the economy is jostled by currency fluctuations. These movements benefit nobody but the currency speculators," he said.
While favouring the UKs rapid inclusion in a single currency, it should not be while sterling was too strong, repeating the mistakes of 1990 and the Exchange Rate Mechanism.
Milk Marque head of planning, David Jones, also welcomed the single currency, pointing out that the effect of sterling alone had knocked 4p/litre off milk prices this year. As well as stimulating trade and reducing volatility, joining the Euro would lead to lower interest rates and more investment.
But there was one overriding concern. Without the ability to adjust interest rates if certain members went into recession, there would have to be big transfers of capital from rich countries to poor ones. Was there the political will to carry that through?
Former governor of the Bank of England, Lord Kingsdown was optimistic that could be achieved. "If the US can manage it, then so can the EU." People would see it as "money well spent", in the interests of political stability.
But this optimism was not shared by Midland Bank chief economist, Denis Turner, who said many Britons would reject a common fiscal policy, especially since the UK was currently the "jewel in Europes economic crown".