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Tuesday, June 10, 2003


Yesterday Britain's Chancellor of the Exchequer Gordon Brown offered his verdict on the "five economic tests" to decide whether the United Kingdom should join the Euro. Result: failure in 4 out of 5. I don't have much to add to what Brad DeLong and Edward Hugh have said about it, and the idea that the fundamentals that prevent Euro entry will change enough to allow for a reassement in nine months is perposterous. To quote Dan Gelfand, "though I have little reason to directly argue against the merits of a rolling review, I do worry that it will give too much of an opportunity to die-hard Europhiles to ignore reality on a regular basis."

Ignoring reality? Consider two of British Spin's points:

The Depth Charges: Two of the major planks of reform to prepare the UK for joining the Euro will scupper our plans to join: Regional Pay Bargaining will enrage the unions and put them firmly in the No camp, while Mortgage Reform will send home owners insensate with rage. [The transition will also be expensive to the Exchequer, and will not be quick--DCS]

A Return to Keynes: Anatole Kaletsky spots this in the Times. If you don’t have interest rate control, then the easiest way to heat up or cool down the economy is through fiscal policy. Now this is explicitly against the Stability and Growth pact, but also politically, the cuts phrase can be very painful.

These are things that Brown has declared he wants to take care of before he decides to recommend that Britain join. They are overshadowed by the main point, though, which is what the Guardian's Larry Elliott gets to:

Meanwhile, Germany hovers on the brink of deflation and French workers strike against attempts to reduce pensions that are no longer affordable in a low-growth environment. Still, if you want Britain to join, Brown's approach makes sense. It has more to commend it than that taken by some members of the cabinet, who appear to be in complete denial about the state of the eurozone and insist on treating the UK public like wayward pupils who don't understand what's in their own best interests.