[A-List] UK eurozone membership: some urgency, please!

["Michael Keaney" <michael.keaney@xxxxxx>]

Take the euro veto away from the Treasury
By Giles Radice
Financial Times: February 12 2003

Just as war is too important an issue to be left to the generals, so UK
entry to the euro is too big a national question to be confined to the
Treasury. I am a great admirer of Gordon Brown, who has steered the economy
with such success. But it is high time that both the national debate and the
government's strategy for joining the euro went beyond the five tests.

When in October 1997 I supported the chancellor's statement in the Commons
setting out the five tests, I did so on the basis that the government was
genuinely committed in principle to joining, that the assessment would be
open and fair and that the decision would be taken without excessive and
damaging delay and in the long-term interests of the country. I could never
have imagined that, 5˝years later, we would still be waiting for the
assessment of the five tests and that speculation about these tests and Mr
Brown's attitude to them would still be dominating the news.

In a recent speech, Ed Balls, the chancellor's chief economic adviser, tried
to put the five tests into historical perspective by analysing four
occasions - the 1925 return to the gold standard, the postwar re-entry to a
fixed exchange rate system with the dollar in 1946, the failure to devalue
in 1964 and the European exchange rate mechanism debacle of the early
1990s - when policymakers failed to pay sufficient attention to economics in
making crucial decisions.

But there is another lesson that could be drawn from the Treasury's past:
that of excessive delay. In 1950, the Treasury was strongly against UK
participation in the Schuman plan. In the mid-1950s, it was at best
ambivalent about British entry into the Common Market. Even in the early
1970s, when the UK decided to join the European Community, the Treasury
dissented. Characteristically, it advised against the UK's joining the ERM
when it was first set up and when we could have benefited most from entry.

Mr Brown is right to stress the need to get the economics of joining right.
On his crucial test of convergence there can be little doubt that, compared
with 1997, in terms of inflation, output gaps, interest rates and trade
orientation the UK economy has come much closer to that of the eurozone.
Indeed, a number of countries already in the eurozone diverge more from the
euro area average than the UK.

However, in deciding whether now is the time to join, it is essential to
distinguish the wood from the trees. We must not ignore broader economic
questions such as the benefits that entry would bring and the costs of
exclusion. In a world of currency areas, medium-sized currencies such as
sterling are likely to experience volatility that will adversely affect
their trade and investment. Furthermore, while we remain out of the euro,
powerful new commercial groups and new trade partners are emerging on the
continent from which we may be excluded. Staying out is not a cost-free
option.

So we cannot hide behind the five tests for ever. If the government is
genuinely committed in principle to joining, it is high time that it had a
comprehensive strategy for entry. Quite apart from the five tests, there are
other vital issues that the government now needs to tackle. These include
satisfying the criteria set out in the Maastricht treaty governing entry to
European monetary union; ensuring the stability pact is suitably reformed to
be more flexible; dealing with the tricky question of the UK exchange rate;
deciding what is involved in the UK joining the European Central Bank and
the increasingly influential euro group of finance ministers; setting out
the timetable and costs of entry, including the adoption of notes and coins;
preparing the legislation that is required for membership; and assessing the
long-term economic and political cost of staying out.

In his new year's message, Tony Blair said this year we faced "what may be
the single most important decision that faces this political generation -
the question of whether to join the euro". If the government is serious
about joining, it should set up a euro strategy group. This should include
the chancellor, the deputy prime minister, the foreign and trade and
industry secretaries, the leader of the House and the Lord Chancellor. It
should be chaired by the prime minister himself, who is, after all, First
Lord of the Treasury and main arbiter of the national interest.

Lord Radice is chairman of the House of Lords European sub-committee on
economic and financial affairs and author of How to join the Euro
www.fpc.org.uk