Saturday, 22 May 2010

UK euro entry: Sour grapes?

The Liberal Democrats seem to have easily agreed to the demand by the Conservative Party to exclude the introduction of the euro currency, as stated in the coalition programme:

We will ensure that Britain does not join or prepare to join the Euro in this Parliament.

While the visceral hatred of all things EU and euro among the conservative power base should not be underestimated, one reason for this seemingly effortless agreement brings to mind the “sour grapes” in Aesop’s fable The Fox and the Grapes.

The latest edition from the House of Commons Library: Economic Indicators, May 2010 (Research Paper 10/35, 13 May 2010; 40 pages) tells us the following about government deficits:

The UK’s 12% deficit in 2010 is expected to be the largest in the EU, with Ireland’s 11.7% second highest. A 10% UK deficit in 2011 would be below Ireland’s 12.1% and only slightly above that of Greece (9.9%, though the IMF programme envisages 7.6%). However, the UK’s gross debt would remain less than two-thirds of Greece’s.

The UK’s gross public debt was estimated to rise from 68.1 per cent in 2009 to 86.9 per cent of GDP in 2011 (page vii).

According to the EMU convergence criteria (or Maastricht criteria) for the third stage in economic and monetary union (EMU) low inflation is a necessity, so the UK would fail the price stability test.

Britain has not participated in the exchange-rate mechanism for two years without devaluation against the euro (its favourite remedy for economic ills), so it clearly fails to qualify.

Failing on all grounds, the United Kingdom could not introduce the euro in a foreseeable future even if it wanted to. Somehow the invisible hand of the markets seems to guard Britain in comparison with the eurozone basket cases.

In such circumstances it is easy to trumpet defeat as victory.

Ralf Grahn