Kick Euro in to long grass

There is no realistic possibility of Britain joining the Euro in the foreseeable future and Gordon Brown is dead right to kick it into the long grass. It is just not on, economically or politically, whatever our leaders' personal desires might be.

Most on the left see EMU as a free-market, big business and bankers' charter, designed to take the major levers of economic policy and power from democratically-elected governments and give them to finance capital.

Not quite all on the left agree with this assessment, but we don't need to have the argument anyway, because Euro membership is not going to happen - at least for a long time. And if the Euro-enthusiasts stoke up the argument, it will do Labour no good in the General Election campaign.

Looking at the economics first, joining the Euro now would be completely irrational and cause serious long-term damage to the economy, especially to manufacturing. A sudden reduction in interest rates to Euro-zone levels would give an enormous kick to consumer demand which would have to be countered by a substantial tightening of fiscal policy - tax increases and cuts in public spending. Left Keynesian economists believe in strong consumer demand, but even Keynesians know you can have too much of a good thing!

Over-heating

Ireland did just this when it joined the Euro. While the initial boost to the economy was exhilarating, the Irish economy has become over-heated so a tighter fiscal stance will soon be making a few eyes water across the Irish Sea.

Another major reason why British Euro membership is inconceivable now is the exchange rate. The Pound is greatly over-valued against the Euro, and joining at anything like the current parity would keep British exports uncompetitive and cause long-term damage to the Britain's manufacturing sector. There would be no 'Golden Wednesday' escape from the Euro as there was from the ERM. Closures, job losses and wage cuts would follow, and Britain could finish up as a permanently poorer member of the EU with reduced living standards and higher unemployment.

Even serious Euro-enthusiasts know that a substantial depreciation of Sterling would be vital for Euro entry to be managed, even in the short-term. A good 25% reduction below Sterling's current parity would be necessary before entry.

And what of the argument that Britain should have joined the Euro from the start, when the parity of the Pound against the Euro was lower? Well, with much lower interest rates combined with a substantially lower effective exchange rate, consumer demand could have risen by volcanic proportions with inflationary lava glowing red-hot, if not igniting. Britain would by now have been instructed to tighten fiscal policy severely. Big tax rises and, more likely, savage public spending cuts would inevitably have hit health, education, pensioners and the poor. This would not have been a scenario likely to entice voters into the polling booth to re-elect Labour.

Conditions for membership

Gordon Brown was also right in his October 1997 statement in setting out stringent conditions for any future UK membership of the Euro. Even the most fanatical Euro-enthusiast must accept that.

So what are realistic conditions for entry? A Pound at around DM2.40 (currently DM3.10) and held at that level for a prolonged period before entry would be an essential precondition. Closely aligned interest rates and coincident economic cycles would also be necessary, with appropriate and stable levels of consumer demand and a tolerable fiscal stance. All this would have to be in place before Euro entry could seriously be contemplated. In reality, this is never-never land, a point so far ahead as to be unforeseeable. So in economic terms, the long grass is the right place for Britain's Euro-strategy and would be best left there.

And why aspire to Euro-entry anyway? Life outside is economically quite comfortable. Britain has its problems, but we still have lower unemployment and lower inflation than Euro-land. Moreover, no less a person than Eddie George, Governor of the Bank of England, said recently that the City is doing very well outside the Euro, so another Euro-enthusiast argument falls.

Denmark and Sweden are also during very well indeed outside the Euro-zone, (as are Norway and Switzerland, who don't even belong to the EU.) With possible EU enlargement on the horizon, several new members might be unable to sign up to full EMU, so there could be quite a large number of EU member states outside the Euro-zone. For the UK, staying out is not a problem.

Import and export

We are constantly told that a substantial proportion of our manufacturing trade is with the rest of the EU. Quite true, but at the moment we import much more from the Euro-land than we export to it, and the depreciation of the Euro against Sterling has made Euro-land even more dependent on its export surplus with Britain. If Britain were to depreciate Sterling to a competitive level, we might not be so welcome in the Eurozone. (An interventionist strategy for bringing down the Sterling-Euro parity was recently proposed by economist, Gerald Holtham and discussed in the May edition of Campaign Group News).

This is just a taster of the arguments against Britain joining the Euro either in the recent past, currently, or in the near future. The Treasury is surely fully aware of these arguments and judging by his Mansion House speech, so is the Chancellor.

Now we come to the political hurdles in the way of early British membership of the Euro. The referendum could be more of a mountain than a hurdle, and extremely difficult to jump. An early referendum will undoubtedly give a 'no' answer, and if the Labour leadership sails too close to the Euro wind in the General Election, this could damage our vote and lose Labour seats.

Some Euro-enthusiasts look back dreamily to the 1975 referendum (on continued UK membership of the Common Market), when public opinion was turned round in a few months. Sadly for them, the situation this time is very different. In 1975 the three Party leaders were all on the same side, as were all the big newspapers, supporting a 'yes' vote. Millions of pounds of Euro-slush was used to secure a Yes vote and the No vote campaign was weak by comparison. The 1975 referendum was also about a different question, on continued membership of what became the European Union, not about a single currency. This time round, the party leaders are divided, the media is divided and there will be a lot more money backing the 'No'vote. There is no certainty that even a very popular Labour Government could turn around public opinion to secure a 'Yes' vote.

The future of Europe

Economic arrangements in the post-war western world worked extremely well, with separate but stable currencies, exchange controls and a relatively high-degree of state involvement in national economies. Those arrangements designed by Keynes and others at Bretton Woods saw the greatest expansion ofthe world economy in history and a massive rise in living standards in the developed world, combining full employment with the development of modern welfare states, the like of which had never been seem before.

The neo-liberal fanatics - Milton Friedman and co - backed by international finance tore up the script after 1970. Governments followed the fashionable dogma and set about reinventing the 19th century with all its inequality, insecurity and injustice. The EMU project is another step on that road, and the left is right to be sceptical.

EMU is presented as the only future for 'Europe'. If one is against EMU, one is against 'Europe'. This is nonsense. Europe stretches beyond the EU and there are alternative, democratic futures for Europe which are ignored. The left should explore such alternatives and demonstrate that we too are positive about Europe's future.