Letters to the editor
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The Euroland Economy
Letters to the editor
Please email your views on Europe and the Euro or comments on this site to MinfordP@cardiff.ac.uk (if you wish your mail not to be considered for publication on this page please say so; otherwise we will assume it may be published freely here.)
Dear Professor Minford
I recently bought my first Euro notes. Whereas a Bank of England note bears the famous words:-
a Euro note bears nothing of the kind. It does not even mention the European Central Bank, which (presumably) issued it. It does bear the following across the top:-
but this is a Copyright Notice in respect of the design of the note, equivalent to:-
at the foot of the Bank of England note, which does not form part of the note proper. Below the Copyright Notice on the Euro note, is a squiggle which may be a signature. If it is, it does not say whose signature it is or what it is for. A signature, unaccompanied by any other wording, is meaningless.
The Bank of England note is a document a species of contract between the Bank and the bearer. The Euro note is not a document; it is nothing more than a piece of paper with some pictures and a number on it.
I recall that the former bank notes of the Euroland countries did at least identify the issuing Central Bank and bear the signature of the Chief Cashier even if they may not have contained the contractual provision of the Bank of England note.
The Euro note is meaningless on its face. This must be deliberate but why?
Dear Mr. Green,
you are right of course. However, in all fairness to the ECB it must be said that the Bank of England 'promise' is a historical relic from the days when the Bank was just another bank and offered you a pound of gold in exchange for the note which was in those far-off days a 'gold certificate'. If you were to try to exchange your note at the Bank today they would look at you with a pitying look! What you are free to do is exchange it for other currencies or gold on the free market; but then so can you with the euro note, as there are no exchange controls in Europe- and long may that continue.
June 23, 2002
Dear Professor Minford,
Thank you for that.
In the USA, the equivalent, of the Bank of England promise, used to be:-
but this was abolished in favour of:-
which is a more realistic formulation of the modern legal effect of a banknote.
The Euro note bears nothing of the sort - nothing to say that it is legal tender. Therefore, it must be read in conjunction with Article 106(1) of the EC Treaty:-
and Article 10 of Council Regulation (EC) No 974/98 of 3 May 1998:-
Therefore, for a piece of paper to be legal tender in Euroland, it must satisfy three tests. It must be:-
Banknote is not defined in the EC Treaty but a standard definition is:-
As already observed, the Euro note bears no promise (the Bank of England promise may never be redeemed in practice but it does still have the function of bringing a piece of paper within the definition of a banknote). Furthermore, the euro note bears nothing to say that it is issued by a bank. Therefore, it doubly fails test 1. It may look and feel like a banknote but this does not make it one any more than Monopoly Money.
The euro note passes test 2 because it bears a denomination in euro. This is really all that it says.
It fails test 3 on its face because, although it may, indeed, have been issued by the ECB or a National Central Bank, it bears nothing to say this. I suppose the reason for this is that a Euro note, issued by the ECB, should be indistinguishable from one issued by a National Central Bank (see below).
All this is highly academic at the moment. The fact is that the Euro note is accepted as legal tender. (That does not make it a banknote. Acceptable as money is a necessary but not a sufficient condition of the definition). Nevertheless, it is technically invalid and could be subject to legal challenge. However, all that would be required to correct this would be words on the note such as:-
The key element, which is the glaring omission at the moment, is the identification of the issuing Central Bank. The beauty of this would be that identifiably different species of Euro note, corresponding to different Member States, would circulate and these could acquire different values. In time, they could evolve into national currencies.
On the last point, great care is being taken that notes cannot be distinguished in case people start to ask for one 'sort' rather than another (recently in Germany a pub-keeper asked me for 'German euros'- I pleaded bafflement but it turns out that the coins (alone) do have different country pictures on the back.
June 25, 2002
Dear Professor Minford
So you cannot tell, from looking at it, whether a Euro note was issued by the European Central Bank or by a National Central Bank or, if the latter, which one. However, do we know the proportions, of all the Euros in circulation as notes, issued by the European Central Bank and by each of the National Central Banks?
Dear Mr. Green, No, I don't think we do. Since in principle these banks are all federated in the ECB there is no difference in law either.
June 27, 2002
Dear Professor Minford
As far as I can see, the figures are as follows:-
Thanks. You may well be right. But I don't think we can do anything with it as we cannot tell from the faces of the notes!
Has anyone besides me noticed the destabilizing effect that the introduction of the € had on the currency markets ?
This happened, not when actual coinage became available, but when the currencies that went into the new one were pegged to it.
The explanation is obvious (to me, anyway, but then, my background is the study of complex biological systems):
Every day, more money is changed from one currency to another, by speculative investors, than is possessed by many middle sized countries. Suddenly, 11 currencies, two of which are fairly major ones, used widely outwith the borders of their homelands, are removed from the system. The complex system of interlocking cycles are de-stabilized. Currencies move up and down more dramatically than before. There are less choices available in which to speculate, so each one takes a bigger burden. The same destabilizing effect that you get in a living organism if illness knocks out some of its biochemical pathways! And sometimes this leads to death of the organism!
I submit, the "cure" would be for international corporations to issue their own currencies, in competition with governments. Why should politicians - in whom very few people still have any trust or take seriously - be the only ones to issue money ? In effect, corporations already do this, as when new shares are issued they create the equivalent of money. If it were done as bearer shares, for example, they could become freely exchangeable !
Brian N Chandler-Lorenz
Dear Mr. Chandler-Lorenz,
Thanks- an interesting point. The difficulty corporations have in issuing actual currency is that, as in telephone systems, the incumbent has an overwhelming advantage that everyone is using its network. So as few use the new money it cannot get a foothold. Instead, as in telephones currency competition takes the form of piggyback; the new entrant issues certificates (bearer bonds or whatever) that are denoiminated in the dominant currency but compete with similar certificates issued by the dominant firm. So we have 'financial deregulation' in which all sorts of competitive certificates coexist.
It is only when the currency is very badly behaved that it gets partly replaced as say some Latin American currencies by the dollar.
As for the euro's problems, they seem to stem from lack of productivity growth realtive to the US. If that changes the euro could well revive. Whether it will last nevertheless depends on the cohesion of EU politics; if cohesive countries will put up with the economic difficulties.
May 18, 2002
Thanks for your reply. There might be an advantage to using the "new currency", if one could argue that it was not really money, but that therefore the transaction was a barter transaction, as I believe barter is free of such onerous EU inventions as "added value tax" ! It would be fun to ry and establish this point in a court, so that people would all rush off to use the "non-currency" and save themselves 12 - 20 % (depending on how greedy their local regime has been) VAT/MwSt/MOMS...
Brian N Chandler-Lorenz
We are told that adoption of the Euro would be irrevocable since there is no way out! Abolition of the Pound would require a vote by Parliament after a referendum. However, it is a principle of our Constitution that no Parliament can bind a future Parliament and that any Act of one Parliament can be repealed by a future Parliament; a point made forcibly by the judge in the recent Metric Martyrs appeal. Can anyone explain how a vote to abolish the Pound could be considered legal if repeal could not be achieved? The present Government says that there are no Constitutional problems to obstruct a decision, only the 5 economic tests.
Is this position tenable or are we being miled yet again?
Yours A S Tallett,
Dear Mr. Tallett, The position is that technically one can always leave a currency union. We simply decide so and leave, issuing our own currency again. There would be costs of course possibly; it would be in violation of the EU treaties for example. Also we would be liable for the value of our government bonds denominated in euros- these would have to be reissued in new pounds at the same value they would have had in euros. However none of these obstacles is insuperable- they are just costs or inconveniences.
So there is no constitutional barrier as entering does not irrevocably bind succeeding governments.
Blair is trying to fudge the figures as is to be expected.
Since the introduction of the Euro here in Europe, we have seen a marked increase in retail prices. Fuel prices have also jumped by some 10% because of the low value of the Euro against the dollar for example crude imports have increased in price. Retail prices of Diesel are now 78 cents a litre compared with 69.5 cents a few weeks ago, As was expected prices were generally rounded up, Banks are charging around 18 pounds to clear a Euro cheque from another member state?. so much for the single currency in a single state??. I hope the British wake up to the realities of this new currency and the real costs involved which as usual the public has to pay for.
Dear Mr. Guerdin,
Thanks. Yes, I think we do realise what has been happening. A lot of 'rounding up' together with a very weak euro as always. Thanks for the reminder, though,
Dear Professor Minford,
The government are presently in negotiations with the Spanish over the future of Gibraltar. The Gibraltarians however want to keep the status quo and their wishes are undemocratically being ignored.
But is there a third option for Gibraltar other than British or Spanish sovereignty? Could the Gibraltarians declare UDI?
In your opinion as an economist could Gibraltar survive as a city-state? I see its GNP is higher than other countries of higher population. Monaco, Andorra, and Liechtenstein all exist quite happily as micro-states, as do the Falklands, the Channel Isles, and the Isle of Man. Could Gibraltar have an independent economy? Perhaps it could specialise in banking (like Jersey) or gambling or by some other means appropriate for small states.
Dear Mr. Wild,
I am too ignorant about Gibraltar's detailed circumstances to comment in detail. But, yes, in principle it is possible for small states to do very well. The reason is that they can offer specialised services and yet because so small not represent a serious threat to the big countries which therefore tolerate them,
Dear Mr Minford,
I have had a quick look at your website and it is good to see that there are sites out there to rival BiE etc.
But the burning question is, Why, when membership of the EU costs this country £1.8 m per hour, and we get absolutely nothing out of it, why just the rejection of the Euro?. After all, as Romano Prodi said only last weekend in Barcelona, "the Euro is not a currency, it is a political movement" ( towards a federal European superstate.)
We need to be free totally from the controlling clutches of the EU and all its red tape in order to free up our economy and set us once again on the trail of free international trade.
Dear Mr. Bowles, The points you raise are important. However, at this stage the debate on being in or out is not properly engaged. Many people do not know the facts; and indeed the facts are not yet properly established (eg on exactly what we might be gaining or losing from the Single Market in services).
So the effective debate is about the euro. I have little doubt that it will spread to the wider issue in due course- possibly in a few years,
% Of Britain's Economic Activity with the European Union?
I am forever hearing from 45% to 65% of Britain's trade/exports go to the European Union.
Can you tell me how much of Britain's total economic activity (not just the parts of Britain's economic activity involved in import and exports) is concerned with the European Union?
I recall reading or hearing that 80% of Britain's total economic activity involves British people and firms buying and selling British made goods and services to British people. 11% of Britain's economic activity involves goods and services from the rest of the World and only 9% of Britain's economic activity involves British people and firms buying and selling goods and services in the European Union?
Your help in clarifying this would be appreciated
Yes, that's about right. It does depend a bit what you include in trade; my preferred measure is all trade in goods, services and interest, profits and dividends on foreign capital (the last being an important use of foreign exchange). On this around two fifths of trade is with the euro area, the other three fifths is with the non-euro (i.e. basically dollar) area.
As trade is again about a third of national income, that means that about 12% of our national income is trade with the euro area; another 20% is with the dollar area, leaving about two thirds with ourselves.
March 22, 2002
Many thanks for your e.mail - I have used this type of argument in several letters to the press in recent months - they always attracts a lot of response. The pro-euro lobby always use the 'most of our trade is with 'Europe' argument. If you use all trade internal and external their figures are rubbish - I enclose one of my recent letters which was printed in my local paper and resulted in responses in the next four editions of the paper!:-
Dear Professor Minford
I wish that more people would see the truth about the Federal objectives that are being sold to the people of Europe under the innocent banner of 'integration'.
The irony in the whole European experiment is that the more nations that are added to the jigsaw, the more the smaller states (Scotland and Wales, for example) actually look to devolve power away from national governments. This process - that I would term regionalisation - appears to fly in the face of common sense and, more importantly, is the exact opposite of integration. I am frustrated that those controlling the countries, like Wales and Scotland, actually see Europe as an opportunity to be heard; when in reality they will simply be subjected to more rules and regulations for which they have far less control than when they were allied to the Union Kingdom.
Unfortunately, give most people a steady job, a beer and 2 weeks in the sun and what do the masses care of Europe? Interest in politics is at an all time low (no surprise really) so asking people to open their eyes to what is happening on another continent is a lot to expect, when they won't even vote in local elections. However, if the reality of the situation was made real to them, that might be the way to get them to (to coin a Blair phrase) reconnect with the 'bigger picture'.
This is my biggest criticism of the No campaign - it is far too academic - and I would be interested to see how things develop.
Thank you for your time and best wishes with you work.
Dear Mr. Turton, I take your point about federal politics.
However the NO campaign has deliberately stayed away from politics for the most part. The reason is that, while I accept your point, most people do understand the political ambitions of the EU by now and that is a large part of why it is so unpopular to join the euro in poll after poll.
While those in the campaign such as Lord Owen who have major political expertise do indeed comment vigorously on political aspects, it is true that the NO campaign has tended to focus on getting the less familiar economic arguments across so that people should not feel there is some compelling non-political reason to join. They will then trust their instincts on the politics.
Dear Mr Minford,
When I read comments about the problems of " one size fits all" interest rate policies, I can't help but wonder why, if it is so dangerous do we have a single currency in the UK? Why is there one currency in the US? Some may argue that there is greater labour mobility in the UK than in the Eurozone. However the evidence seems disclaim this. There is no evidence that labour mobility within the UK is significantly higher than between the main Eurozone economies. This would tend to confirm the longstanding disquiet of Scotland, the north and the south west with the "made in London" interest policy due to these areas having to use the pound. Consequently the industrial heartland of the UK has lost competitiveness.
Of course it is arguable that the economies of scale given by having one currency in the UK partly counter balance the negative effects. In Europe as in the UK in general labour mobility is increasing thanks to mutual recognition of qualifications, use of english as a business language and the better teaching of foreign languages, portability of pensions and mutual recognition of social security cover.
The argument that the UK is closer to the US business cycle also seems to be becoming less true. Obviously the UK's reliance on (dollar priced) petrol for a large part of its exports and some tax revenue make it more sensitive to dollar movements, however UK reliance on these revenues is falling.
I would suggest that the market should decide, make the euro legal currency in the UK and see which one is adopted by the public and business.
Dear Mr. Wensink, Thanks.
Actually, the euro can freely be used in the UK already. We know that a currency equilibrium is a 'winner-takes-all' type because money is a network good (if you use it, I use it etc).
Labour mobility in both the US and to a lesser extent the UK is high- much more so than on the continent. Another factor is the automatic fiscal compensation of regions from the tax/benefit system, plus discretionary transfers. This is on the macro side. On the micro side, Wales is a bit like Netherlands vis-à-vis Germany- closely integrated so the transactions cost and exchange rate stability arguments are relatively strong.
In short the cost/benefit calculations can differ for different regions,
I've just read your answers to the letters and I must say I'm starting to be agree with your point of view...
as a fact I'm an Italian, living in North-East and seeing the awesome economic increase of Veneto in the last 30 years, the region were I was born and I live, I'm getting the impression that this funny euro thing will be highly dangerous for the people here in North Italy....
Verona, the city where I live, was and it still to be a stepping stone for germans people that choose to get a holiday around here....we know very well that Italian Lira wasn't so strong and powerful confronting to German Mark....by the way it was our fortune in term of tourism....
anyway, Veneto e Verona have many ways to develop their works and jobs, but we noticed that the damned (sorry for this word but I know in Britain taxes are 39%, and less in Ireland!!!) taxes still to be too high......something nearly to 62%, and I believe Europe will ask more taxes.....but noticing that Italy has three differents as I call them "Lifes"....it's impossible try to put on the same level South Italy with North Italy, and especially with our region....and we never, I repeat, never felt Italians as southerners, having total different point of views, work and develop is our first motto.......but unfortunately it seems that pasta, mafia e pizza is more important than work and honour and stability.....
noone ask us to join euroland....i hope Great Britain won't join this crazy mess.....you have to preserve your status and stability.....
I'm sad seeing the Lion of Saint Marks in Venice getting another domination from French and Germans.....1000 years of republic and freedom destroyed in 3 years!!!
Thank you for your patience,
Dear Mr. Donato, Thanks for your most interesting letter. All I can say is good luck to you all (and to Mr. Berlusconi) in creating some order out of all this for Italy,
I JUST SCANNED ''CAPTAIN EURO '', PLEASE ADVISE WHO FUNDS THIS CARTOON?
WHO IT IS AIMED AT?
WHY NO COMMERCIAL PEOPLE IN GOODIES, ONLY THE BADDIES, WHAT ON EARTH ARE WE TEACHING THE NEXT GENERATION ABOUT THE REAL WORLD??
This cartoon is I believe something put out and paid for by the EU Commission to spread propaganda about how good all things European (and the euro in particular) are. I haven't paid much attention to it; there is a lot of this sort of propaganda about but most people see straight through it.
I am writing as a U.S. citizen (Texas) to give a non-European view against adopting the Euro.
The British Pound is unique in that it is the only currency that has a greater than one to one exchange rate with the U.S. Dollar.
There is also concern on this: What happens if some of the weaker economies of Eastern Europe join? Will this devalue the Euro in the countries that have already adopted it? Can you imagine if Albania joined the Euro how that would be?
A second concern is: Although European countries are at peace now, what happens if another Bosnia type war happens? Are we to believe that all the varied cultures, languages and traditions across the continent are just going to always get along?
Why would Britain want to give up its monetary sovereignty to a bunch of unelected bureaucrats ?
The big danger now is not just the currency being unified, but the next step is likely to be a 12 nation Euro V.A.T. in which individual countries will lose their taxing authority to some unelected group in another country.
I hope we in the United States NEVER try to unify our currency with Canada and Mexico. Thanks
Thank you. The concerns you mention are ones I share. However, the main one that presses is the question of keeping a modern economy stable and growing through independent monetary policy. The recent experience of the euro has illustrated just what a serious problem this is - the most extreme problems having been experienced by Ireland.
Stumbled on your site accidentally. Thought that two articles I wrote for Forbes on prospects of Euro (if you go to Forbes.com, type in my name, you will find them), would interest your readers.
Both written before it came into being, and - unfortunately for the optimists on the value of the Euro - my views turned to be accurate.
Since the articles are posted on Forbes.com, guess that your site must provide the link.
Dear Mr. Brenner, thanks. We'll link to them,
Professor Brenners articles:
Can you please help me - I need to know whether when the Euro comes fully into play will UK companies invoice European countries in the Eurozone in Sterling or Euro?
Dear Ms Hickman,
it will (as now with DMs, Francs etc) be a matter of their commercial choice,
An argument frequently used in favour of our using the Euro is that it would make our exports to Europe cheaper, i.e. more competitive. However, I never hear about the effects on imports.
Surely the balance of advantage and disadvantage would depend on the current balance of trade with Europe.
I wonder, also, how readily the UK public would accept rising import prices for items such as food products purchased from Europe?
J A Smith
Dear Mr. Smith,
Whether joining the euro would devalue the pound or not is a question to which we do not know the answer. Probably not but who knows?
There are two points about it.
First, what rate we joined the euro at is a transitional matter. If it were 'wrong' (i.e. temporarily out of line with the business cycle), then it would in time be corrected by movements in relative UK prices.
Secondly, the effects of a devaluation would be similarly transitional, whether it happened when we joined or some other time when we had not joined.
You are right: when a devaluation happens it raises the price of imports while it also makes exporting more profitable. So it is a two-edged sword. Central banks welcome it sometimes - e.g. when they are worried about recession and inflation is low - and dislike it at others - e.g. when inflation is rising and demand is strong. Just because they have a transitional effect movements of the exchange rate are part of the armoury of monetary 'smoothing' of the business cycle - nothing more.
I wrote the letter below to the Telegraph today - but I doubt if it will be printed. I'm forwarding it to you just out of curiosity if you have a thought or two on the thesis presented therein. It is much the same as a theme presented centuries ago by Blaise Pascal, in that [paraphrasing] out of a striving for good, people often commit the greatest evils.
You are somewhat pessimistic perhaps. People often insist that their governments pursue enlightened policies that could generate growth...
But then again not always by any means! Vested interests can enjoy an extraordinary lease of life; just look at the big three of the euro-zone,
January 11, 2002
Yes, it is a bit pessimistic and if the scenario plays out, it will take decades to develop, I suspect. However, it was just such economic hegemony [and Bismarckian mismanagement] which is enabled by the development of self-interested currency zones that helped set the stage for the rise of German nationalism after WW I. I don't recall that anyone has ever lost a wager betting on the side of vested self-interests of politicians when the alternative is an advantage for the "greater global good", if you'll excuse that term.
I'm not really the pessimist, but more a cynic. In my youth there were times when one world-ism was a relatively attractive concept. And, should there be some monetarist enlightenment among global leaders along with free trade provisions, I still have a strong feeling that it would provide for a remarkable economic renaissance among the LDC's. However, as long as politicians are greedy, self-serving, power-hungary, and controllist bureaucrats it is unlikely to happen. Given that I see no realistic chance of changing the spots of the political leopard, the result is more likely to be combative than constructive.
That is awfully negative - even I rail at the pessimism inherent in that last paragraph, but the further down the road we go with the current UK government in a supposedly enlightened country, the further they reveal themselves in just that light. What hope, then, do people in LDC's have when the level of corruption in their governments is even more apparent and burdensome? It is not a pretty sight, forecasting the political future based on the behaviour of politicians.
And if you wonder from where this gross level of cynicism arises, take one of last week's news stories where a farmer was arrested for pulling the plug on a "rave" held by trespassers in one of his barns. The police would not evict the trespassers, as they also refused to do in a prior week when the same thing happened. Since we can no longer control and protect our own property, and woe unto the man that defends his house from burglars seeking to steal those things for which he has worked, what liberty and protections of liberty remain for us, the peasants of this land?
Thanks. There are indeed plenty of things to be pessimistic about. When it comes to the sort of global protectionism you are talking about however the forces of trade are pretty strong today fortunately. People have discovered after the disastrous protectionism pursued by most ldcs in the 1950s and 1960s that it doesn't work compared with 'openness'. It is the latter that gave the emerging countries their massive growth. Hence today China wants to be in WTO more than anything and now is, and will do whatever it takes to stay in...
If Britain joined the Euro and the currency failed. Do you think that Britain would pull out of the currency and either revert to the pound or would a switch to the dollar be more likely. Would Britain then pull out of the European Union and then join NAFTA.
Thanks for your time
It is possible but expensive to pull out of a currency. So yes, if the euro failed and we were in, Britain would pull out. As for leaving the EU and joining NAFTA, that is an issue yet to be discussed; much will depend on how other aspects of the EU pan out.
If people where given a referendum on either continued use of the Pound, or switch to the Euro. What do you think the answer would be. Keep in mind, the public would be subjected to large amounts of propaganda. Join the Euro or face unemployment, various comments like that.
Also if the public was given the idea of pulling out of Europe and joining NAFTA and switching to the Dollar, which way do you think such a vote could go. Being as it is an idea never put forward to the British people. Do you feel that such a idea would sit well with the British public or recieve the same kind of hostility such as the Euro.
Thanks for your time
I do not think the public would accept the euro and give up the pound whatever the question or the propaganda; I think they are very aware of the issues.
As for the wider issues of NAFTA, these are premature - people are unaware of what is at stake.
Dear Professor Minford,
Your point about seeing the Eurozone and its members as comparable to the UK and an area such as Yorkshire was very enlightening and conjures up a picture of the Eurozone with depressed countries comparable to the depressed Wales and Scotland of our recent history. By a tortuous route I came to the following conclusion. Please could I have your view on it.
productivity of currency zones determines the exchange rates
Dear Mr. Gilbert, an ingenious argument but alas faulty!
The point is that changing productivity affects the relative prices (in a common currency) of different countries. If they fix the exchange rate then instead of productivity affecting the exchange rate it affects price levels.
For example take Ireland with fast productivity growth but a fixed euro exchange rate. Its faster productivity (in traded goods, as typically is the case) drives up wages in Ireland and so also the prices of home-produced goods and services; so the Irish price level rises faster, as we can see has happened indeed within the euro.
January 07, 2002
Although countries such as Ireland are increasing their wages and employment level due to their increasing productivity, they have no need to reduce their prices except to meet the competition of the Eurozone market as a whole of which they are only a small part. To compete, the other Euro countries must relatively reduce wages or accept greater unemployment.
This implies that unemployment figures and wages will change in Euro countries according to their relative change in productivity. Some countries have consistently led or trailed and one would expect this to be reflected in their unemployment/wage figures.
Is this true for the last 3 and a half years?
Dear Mr. Gilbert,
The unemployment in countries like Germany is not because of their low productivity growth as such. Rather it is because their wage levels are set, by social measures usually, at levels that do not respond to differential productivity. In short, they are inflexible downwards when they need to fall to face global competition. Nevertheless, give the tendency for social measures to create some degree of inflexibility downwards, it is obnviously helpful if productivity rises faster,
February 19, 2002
Dear Professor Minford,
Thank you for your answer to my question saying that the government supported the Bank Rate by issuing Treasury bills.
I am considering the idea that inflation could be managed by government control of its income/expenditure balance alone.
This would mean that Interest rates could float.
Is there a straightforward way of calculating what the base interest rate would be for the UK and/or the world generally if it floated?
Would a floating interest rate have a significant effect on the economy, comparable say to the floating of exchange rates?
Dear Mr. Gilbert, a floating interest rate is like the old idea of 'monetary base control' where the quantity of notes and coins is fixed and the interest rate allowed free. (See for example the recent IEA book on monetarism by Gordon Pepper.) It has generally not been practised because of fear that rates would be unstable. But the debate continues,
If, a big "if" we were to enter the Euro zone we would expect and get tax harmonization ... I don't think!! Big multi-national companies giving up "rip off UK" I can't see it ever happening.
Dear Mr. Taylor,
the point is that it is something wanted by other states, regardless of the wishes of multi-national corporations
I took early retirement a couple of years ago and intend to live in France from April 2002. The Euro in itself holds no worries for me - in fact quite the opposite in terms of using it in France and the other countries that have adopted it.
However, what I do worry about is what happens to my uk savings and pensions should Britain decide to join. Surely even the most bullish of governments would not contemplate us joining without addressing concerns such as this? I find the current lack of government instigated debate on the Euro which could stimulate answers to my concerns both irritating and frustrating. I have an open mind but cannot hope to decide as things are at present.
Dear Mr. Bell,
There is a worry about UK state pensions from joining the euro. Being so closely involved with other states leads to involvement also in their financial affairs. If one of them were to default on their debts this would cause problems for others (their own debts, also now in euros, would face higher interest rates and of course there would be all sorts of other problems, rather as if one of our own regions were to get into difficulties). Hence there would be pressure to 'bail them out' which means in effect we UK taxpayers would have to contribute something.
State pensions systems on the continent - especially Germany. France and Italy- need huge tax injections to be solvent. This is on top of some rather large deficits they are already running. There is a worry we could get caught up in helping out.
Obviously the generosity of UK state pensions must partly depend on what other claims there are on taxpayers' funds. So involvement with continental problems would certainly be something to be avoided,
Tell me how does the ordinary person do either of the two things in your answer to Mr Cramer's e-mail?
Firstly once elected the government can and do ignore the population, they are so far removed and isolated from the ordinary person that to remove them before the end of their 4 year term is impossible.
Secondly how do we make them do better? if they ignore the general population en mass, take us through stealth and deceit into changes that we do no not want, then the ordinary person has no chance at all in trying to make them do better.
We vote for a government to run the country, not to change things at will, impose things on us without real thought of our British identity as a people. It is a very funny type of Democracy we talk about in Britian. More a dictatorship for four years.
Dear Mr. Bonnett,
I take your point. But ours is at least a democracy and if not you alone, at least we as a group, if we organise ourselves, can make an impact on our government. Think of the fuel protests, or the campaign to improve our public services, or the pressure on the police to make video cameras on roads more visible. Like these or hate them they are democracy at work. It's not perfect but what's the alternative? And on the euro, we have a referendum, much as Mr. Blair might wish otherwise,
Dear Professor Minford,
The UK's own experience suggests that because the rate of exchange between their currencies is fixed, there will be a balance of payments crises between the 12 countries in the Euro.
Are there any published figures which would show whether things are moving that way?
Dear Mr. Gilbert,
With a single currency such 'crises' cannot really happen. It is like Yorkshire and the rest of UK. Yorkshire people and firms borrow and problems show up as a reduction in the creditworthiness of those people/firms - i.e. a 'crisis' of Yorks in the sense that things are not going well, because the economy is growing poorly and it is hard to get investment funds.
In terms of statistics one would have to rely on such regional stats as are produced,
Dear Mr Minford,
I have never seen what the advantage of floating rates is. As a businessman, they are an absolute curse. And of course, they enable the banks to rip us off something rotten.
Until 1975 exchange rates were fixed, and we all knew where we stood. Then some other pressure group (the banks??) won the argument for moving to floating rates, and look what happened to the pound - it lost almost 50% of its value overnight!!
The sooner the pound is replaced by the euro the better. I'll be walking round with euros in my pocket from now on.
Sincerely - E Relton
Dear Mr. Relton, I understand your frustration. In a sense you are right. If the whole world had a single good money, life for businessmen and ordinary public too would be just fine from a monetary viewpoint, assuming that market prices were reasonably flexible.
The main difficulties arise when there are several moneys. Now we have primarily from our viewpoint the dollar and the euro as global moneys. Our problem is that they are quite unstable against each other and yet we have roughly half our international dealings with each. Fixing to either creates monetary problems for us.
Also because our business cycle is not well co-ordinated with either, the problem is that much worse.
Some businesses dealing mostly with the euro or mostly with the dollar have their own interest in the matter. But for the economy as a whole, the above problems dominate.
Generally speaking, I have little concern for The Pound. Though it has indeed served us well for generations, and is a part of our National identity.
My concerns lie elsewhere.
Is it not worrying, that we have in power a government that shows contempt for the wishes of the population it purports to represent, and indeed serve.
For that is the primary function of any elected politician I feel sure that these underhanded tactics will produce a backlash The "We know best" brigade had best start to consider their options.
Dear Mr. Cramer,
yes I agree. But then we did elect them and we have the power to remove them or push them to do better under our democratic process,
Dear Professor Minford
Here's a suggestion. How about writing a book on the euro and the EU from an economists perspective but in conjunction with those of other political persuasions?
Many books about the EU have been written but not many from an economics standpoint and those that are economics books are not really for the layman.
Personally I am opposed to the euro from democratic and constitutional grounds but as the pro-euro side believe that it is purely about economics we need to prove them wrong on both grounds.
This book should be for the layman and would help people decide in a future referendum.
You are an economist associated with a centre-right but as the right are already on the sceptic side, this book should also help win over the left, centre and green.
So your section of the book could be followed by a piece by David Smith (author of 'Will Europe Work' and former economics editor of the Sunday Times) and accompanied by a piece by a Business for Sterling representative and then these centre-right pieces would be balanced by a left-wing anti-euro commentator - perhaps Larry Elliot, the economics Editor of the Guardian newspaper (or maybe the left-wing anti-euro journalist John Pilger) accompanied by a piece by a TASC (Trades Unionists Against the Single Currency) representative, the New Europe leader and former SDP MP David Owen would give a centrist, almost Blairite, anti-euro chapter and for the Greens there could be Caroline Lucas or Mike Woodin(who could possibly draw upon the writings of E.F Schumacher).
In this way one publication would show the opposition to the euro from all sides of the political spectrum largely from an economic standpoint. And in language a layman could understand. It could have a chapter by Tony Benn explaining how why he feels that it is really more to do with politics than economics and would mention the constitutional objections to the single currency. Another person who could make a similar case would be Marc Glendenning of the Democracy Movement.
The book could have an introduction by Carol Vorderman (for a bit of a populist touch)and a conclusion by Christopher Booker (who could attempt to join some of the different ideas together).
As for a title what about ?
The Euro - Bad for the Economy & Bad for Democracy
The June Press would I expect be willing to publish it.
I hope that you like this suggestion.
Dear Mr. Wild,
many thanks for this suggestion. I fear I am so inundated by work (including that on the euro itself, as e.g. published by the no-campaign) that I am unable to follow it, good idea that it is. I am sure however that all these people will independently make their point. You could also suggest the idea to Global Britain (Gerry Frost is the director) who might be able to carry it out,
I would be much more impressed with the "Keep the Pound" argument if we only had our own language on our coins. But we don't - it is some funny ancient language which nobody understands. And - oh dearie dearie dear, it's a European language!!
Also, I cannot help feeling that there is an undercurrent in these arguments which really wants us to become dependent on the USA - even to become the 51st State. And if that were to happen, the pound would be replaced by the dollar quicker than you can say Fort Knox. All the claims for the British economy, sovereignty, etc., would be lost at a stroke.
E Relton, London.
Dear Mr. Relton, Thank you. Of course our language has European (Roman) origins. I am not sure what that has to do with the Chancellor's Five tests though!
As for joining the dollar that has just the same drawbacks as joining the euro - the $ is unstable against the euro. By joining either we expose ourselves to the cross-fluctuation; if we keep the pound, it can 'move between' the two, rather like someone siting on the centre of a seesaw.
If the Prime Minister is so determined to have a single currency, why not have the Dollar. I can speak for anyone in this country but I think people would have less objections. The fact being the dollar is highly successful currency, whereas the Euro is basically a toilet currency that could fail at any point to the mismanagement of the ECB. Has using the Dollar ever been put to the British people. I remember once that the US government suggested instead of using the Euro we could switch to using the Dollar. I feel that using this Currency which is successful would have many financial benefits for this country.
Thanks. But the problem with the dollar is almost the same for the UK as with the euro. We do have roughly half our trade broadly defined with the dollar area; but this means we have the other half with the Eurozone. The dollar versus the euro is like a seesaw. If you fix to one end of a seesaw, you fluctuate dreadfully against the other. Essentially this is why we 'float'; it allows us roughly to sit in the middle of the seesaw.
There should be not one penny more spent on this euro business until there is a referendum by the people of this country. With a plain, not loaded question. Even the name euro is trashy. Monetary union didn't work for us, this won't either. The biggest CON ever was decimalization. When I voted for Common Market, that was what it was supposed to have been. A market. Trade. Nothing about Brussels, straight bananas and all the idiocy coming from that place.
Not for me. President Blair and cohorts should be tried for Treason.
Dear Mr. Doull,
thanks for your letter. It's a fair point. In fact not much money, as these things go, can be spent on the euro until after a referendum. As for the question, one way or another it has to be: should we have the euro instead of the pound? Difficult to wrap up!
It's all very well denouncing the euro but don't let's create another Maginot line around which the EU federalists attack us.
For all the sound reasons for not joining the Euro we should not be in the EU
That is certainly another issue, which I believe will come to the fore in the longer term. However, at present the focus is, and has to be, on the euro issue alone. It is easy for people to become confused if the issues are made into one; let us sort out our non-entry into the euro first. It is an issue that people are now getting a good understanding of.