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Tuesday, May 13, 2003


In last Sunday's Observer, William Keegan starts off by saying:

The world economy may well be in serious trouble, and could turn the current debate about the euro in the United Kingdom into a sideshow.

Mr Keegan is a little late; the British euro debate is a sideshow, especially since everyone knows that Britain is not going to join the euro now anyway. The eurozone may be in crisis, and Britain itself faces a housing price bubble and, oddly in these times, the chance of rising inflation. No, uncertainty and credibility appear to be Britain's biggest economic worries at the moment, and both pro and anti-euro folks are pushing for a "commitment technology" (i.e. the referendum) to counter their Gordon Brown time-inconsistency problem. It takes Ed Crooks, the FT's economics editor, to write in the New Statesman (subscribers only) about the answer to all this:

For Blair, a referendum is the only outcome that does not look like some sort of defeat. He has given so many assurances of his enthusiasm for joining that he cannot again allow Brown to kick the decision into touch. Some big inward investors, as a result, have been making decisions in the belief that the government was committed to joining the euro in the foreseeable future. If that belief proves mistaken, they will feel betrayed. In Europe, too, Blair and Brown have traded on the impression that Britain is a euro 'pre-in' rather than an out. A formal decision to stay out would suggest a determination to remain on the margins of the EU.

For Brown, the important thing is to keep Britain out, for the time being at least. As any reputable economist will tell you, the balance of costs and benefits from joining the euro cannot be judged beyond all reasonable doubt. Even supporters of entry admit it will lead to 'greater volatility of output': in other words, the economic cycle will have higher peaks and deeper troughs. For the Chancellor, who promised 'no return to Tory boom and bust', the prospect is alarming.

So the government should send a strong signal to inward investors and the rest of the EU that it is still committed to the euro, while not actually joining. A statement of intent in principle would be too weak: it has done that before. Only an actual referendum will do.