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Answer to question 6 Continued.
This is another argument we hear widely- that the Japanese, Germans, French, Koreans and others who have invested here will melt away if we are not in the euro. But the decision to invest is naturally a long term one resting on a judgement about long-term competitiveness; in the long term an exchange rate that is flexible has advantages at least as great for an investor as one that is fixed. It means that if competitiveness is threatened then the exchange rate can adjust; under fixed exchange rates or monetary union the mechanism of adjustment is falling wages and that can be lengthy and fraught with controversy. The key factor is the commitment of the country and its government to competitiveness as well as cost factors such as infrastructure, language and property rights. Numerous surveys have confirmed this and a leading Japanese observer, Noriko Hama the chief international economist of Mitsubishi Research Institute in London, has put it thus: '...Japanese businesses located here… appear quite happy for the UK to retain the exchange rate flexibility it now enjoys... When all is said and done, the UK's inability to become wholly European may in fact count as its greatest asset where inward investments from Japan are concerned.'
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(question 7)
© Patrick Minford 2002