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QUESTIONS AND ANSWERS ON BRITAIN AND THE EURO
 
Answer to question 5 Continued.
 
Time and again in the debate over Europe we have been told that we cannot afford to stay out of whatever other countries were planning. But even if that were true before, and that is another matter altogether, over the Single Currency it appears to be quite misleading. The Single Currency is a way of organising monetary policy as we have already seen; it is a pooling of interest rates and exchange rates, normally only done by a single state that can then use other means of adjustment. It is probable, and already being widely suggested, that the members will adopt all sorts of coordination of policies to try and reduce the problems we discussed earlier. Protection is not however one of them- for a simple reason: it is totally illegal under the very Treaty setting up the euro. This is not to deny there is all sorts of covert protection around the EU against fellow EU members. But it is being gradually eliminated by existing actions within the EU and as it is already so extensive the euro can hardly make it worse; and in any case such covert action is not what is suggested, rather it is overt coordinated action by the 12 euro-club members. But such overt action would be impossible under the Treaty of Rome as amended by the later agreements like Maastricht, and any such action would if attempted render the Treaty a dead letter, which would hardly suit the 12 whose club is founded on it.

We can add to this the point that our trade with the rest of the European Union is greatly in deficit and has been so for decades. We are net importers of both food and manufactures. On food trade we are badly damaged by being part of Europe because we pay high prices to support farmers across Europe. On manufactured trade the direct foreign investment that comes here to avoid Europe's trade barriers may well improve our net import position. But recent studies show that were we to have a trade war with the rest of Europe we would gain (or at worst not lose) and they would be the ones to lose because we import so much more from them than they do from us.

That leaves monetary and fiscal (tax and spending) policy which is to be discussed in the special euro meetings of ministers only from euro countries- a matter Gordon Brown has been much exercised about. Yet the idea that such meetings are a threat to those outside is paranoiac; they will be desperately needed for discussion of the pressing issues we detailed earlier of how to deal with the strains of euro policy. The members will also need all the help they can get from those outside including ourselves and the Americans. There are already several forums for such general interchange in the Group of 7 and other IMF and World Bank meetings all through the year. The euro countries' struggles to set their policies jointly will hardly threaten us, but they will certainly need our help and cooperation, something we will of course freely give.  
Return for next
(question 6)
 
© Patrick Minford 2002