Political Consequences Of The Single European Curr

Essay, Research Paper

Political consequences of a Single European Currency The basic political argument for retaining our own currency is that adopting the European single currency, in the absence of measures to buttress the intergovernmental pillars of the EU, could prove a decisive step towards turning Britain into a mere province of Europe, with a consequent loss not only of independence but of democratic accountability as authority is transferred from London to Frankfurt and Brussels. This fundamental political issue was defined, as long ago as 1961, when the question was put whether Britain wanted to be part of a federal Europe and become a Texas or California in a United States of Europe.We have not yet become such a federal Europe, although much of the EU’s decision-taking has edged us ever closer. Already a considerable number of decisions suffer from a “democratic deficit”. It is still possible for the EU to retain its unique design of being an intergovernmental body with supranational structures covering in particular the single market. But membership of EMU has wide implications and the “democratic deficit” already considerable in the EU will grow.It is worth recalling that in the 1975 UK referendum campaign the official document sent out on behalf of the ‘Yes’ grouping, in the section on ‘Money and Jobs’, said, “There was a threat to employment from the movement in the Common Market towards an Economic and Monetary Union. This could have forced us to accept fixed exchange rates for the pound, restricting industrial growth and so putting jobs at risk. This threat has been removed.”If the UK adopts the single currency, much detailed economic policy would no longer be managed by the British Cabinet, answerable to the Westminster Parliament. Under the “Euro-11″ committee, a club of single currency finance-ministers from the eleven participating nations, existing pressures within the single market to harmonise economic policies will grow. Euro-11 will have to operate within a regime in which a European Central Bank sets a European-wide interest rate at whatever level is required to restrain inflation measured on a Europe-wide basis. In other words, the ECB will watch an index of inflation across Europe – as the index rises, interest rates will be pushed up, and as the index falls interest rates will be reduced.When each member country in Euroland submits its budgetary and other economic plans to the committee, as it is obliged to do, Euro-11 will evaluate those plans in the light of their inflationary, and hence interest rate consequences, for Europe as a whole. If the Spanish, Italian or French governments pursue budgetary policies which have inflationary consequences, the results will be felt not only in the country concerned but by everyone else in the zone because the ECB will in response raise interest rates across Euroland to contain the rise in the European inflation index. Because, as a result, all member countries will be affected by the fiscal decisions taken by any individual member, they will all wish and more importantly will be entitled to influence the policies adopted by individual governments. The Euro-11 committee will make recommendations about each country’s budget, backed in extreme cases by the imposition of fines. Because of the inherent instability of this system the dialogue between individual finance ministries and Euro-11 will be virtually continuous. These Euroland finance ministers would, if we were part of EMU, effectively replace, for all purposes directly or indirectly connected with economic management, our own Cabinet and Bank of England operating within our parliamentary system. The Euro-11 committee may initially seek to concern itself simply with the size of budget deficits and surpluses in the member countries, but it will quickly move to much more detailed discussion and intervention if the single currency is not to fall apart.Arguments will be deployed to justify collective decision taking in Euro-11 over many other areas of national government – corporate taxation, working hours, proposed changes in the welfare system, minimum wages – which will all need to be harmonised eventually within a single currency zone. The fact is that Euro-11 is the putative economic government of that part of Euroland which operates a single currency. Not surprisingly many of the politicians in these countries welcome a federal Europe. They have more faith in that than in the continuation of a number of self-governing nation states.

Were the UK to be a member of Euro-11 – or Euro-12 as it would then be – we would be able to cast one weighted vote out of 12 to help determine the economic policies of France, Germany and Italy, which we cannot do today. But the downside of that – to have only one weighted vote out of 12 in the determination of what most of us see as our own affairs – is a massive price to pay. Many people will not be prepared to pay this price without very clear evidence that membership of the Euro carries with it a substantially higher standard of living and greater international security and even then they may prefer to retain the independence, identity and freedom of being part of the nation which they and their ancestors have lived in peacefully over the generations.There are political dangers of instability and even insurrection from having a ‘currency straitjacket’ imposed across the diverse 15 nations within the present E