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Answer to question 8 Continued.
It is difficult enough to run a complicated modern economy on one's own, using the interest rate and the exchange rate to steer the economy through the boom and slump that is an inherent tendency of the capitalist system which has generated our prosperity. We need to be free to spend public money where it has a good return and to set tax rates as low as possible consistently with paying the spending bills. That way we have a good chance of maintaining a competitive dynamic economy that will raise living standards consistently and not cause serious disruption from bad recessions. The 12 continental countries have decided to go ahead with the euro- but though we must hope for the best, their difficulties will be formidable as we have seen and may well mean that the euro will ultimately break down.

For us in the UK joining would probably be little short of disastrous - as we discovered on previous occasions when we tied our currency to the continent (during the ill-conceived 'snake' of 1972 and the dreadful ERM recession of 1990-92). We have close links with the USA and the other Anglo-Saxon countries, not just on manufactured trade but also in services and most of all in investment. This means that the dollar relationship is vital to us; being part of the euro could well upset badly our relation with the dollar. Furthermore our economy has a very different structure to the continent's in numerous ways; we are bigger in services, we have more unskilled workers, we have much higher employment and work participation, we have many more mortgages that make the economy much more sensitive than theirs to interest rates. Finally we have much to fear from continental 'coordination' in the name of the Euro; our economy is relatively flexible and deregulated and continental-style taxation and regulation could destroy that.
Return for next
(question 9)
© Patrick Minford 1999