Powerful organisations - the government, Brussels, multinational businesses - are trying to persuade you to give up the pound for the Euro. You should not. This letter tells you why.
1. The Euro is a step towards political union in a United States of Europe - a European super-state. A single currency requires a single state to make it work. Already for a start there must be 'co-ordination' of budgets, under the 'Stability Pact'; and there are proposals for common tax rates and common social 'charges' (i.e. taxes) on employers. These would make the Welsh economy uncompetitive. But they would be followed by much more intervention from Brussels under the excuse of 'making the single currency work'.
All these plans are backed up by great centralising powers held by the EU- the European Court now overrides our courts and even our Parliament, Brussels directives passed by majority voting have to become law in Wales and the UK, and because of the expansion of the EU to take in more countries majority voting is intended to extend to more and more areas in order to stop decision-making being 'too unwieldy'. All this power could be used within the Single Currency to set our tax rates, our public spending priorities and our ways of doing business.
So the Euro would mean we Welsh, and British in general, would lose our sovereignty as a democratic nation - something we fought two world wars to preserve would be given away at stroke. Nor should Welsh people think that being ruled from Brussels would somehow preserve Welsh self-rule while UK democracy was being side-lined; the Brussels system is bureaucratic and unaccountable, with a massive 'democratic deficit'. The Welsh would be trading a democratic system under which they both elect MPs to Westminster and also elect Welsh Assembly members to Cardiff for rule by an international bureaucracy over which the Welsh people would have no control at all.
2. The Euro is a huge experiment which will not work even for the 11 countries now joining it. There have been such experiments in the past century. In Germany there were several monetary unions before Bismarck united Germany under Prussia. There was a Latin Monetary Union led by France in the middle of the last century. All of them broke down. The problem they all faced was the same one the Euro will face; setting interest rates and the Euro exchange rate against other currencies, especially the dollar. By having a Single Currency the 11 members must also have a single interest rate and of course a fixed unit of exchange against each other. But having the same interest rate and exchange rate for all the very disparate parts of the Euro area, from fast-growing Ireland and Spain to stagnant East Germany, is full of problems which massively outweigh the modest gains from having to change money less often. It is bad enough managing the different regional needs of a single country with a single currency; think of the way manufacturing industries in Wales and the North of England in the past few years have attacked the strong pound and high interest rates while the South was enjoying a service-dominated consumer boom which needed those things to control it. We cope with these strains in the UK in a lot of complicated ways; we help regions in trouble by a national system of taxes and benefits that automatically transfers more money to them, their MPs scrutinise policy generally to see how else they can be helped, then people are free to move from region to region, and finally we have developed a flexible, competitive labour market so that wages respond flexibly to regional problems. No area has benefited more from this generous system of UK solidarity than Wales which for two decades has had to contend with the decline of coal and bulk steel; huge sums of money have come from the Exchequer to assist Welsh regeneration, with enormous success. No such mechanisms are available in the Euro area. When these strains develop in response to shocks, like regional recessions, the burden will entirely be on the European Central Bank to adjust the Euro-wide interest rate and exchange rate. This adjustment could be right for the average region but will be too tight for the regions in recession and too loose for the regions that are still doing well. The lack of regional monetary flexibility will add to the size of recessions and of booms in every region. People in countries in recession will rebel against the inflexibility of policy that prevents them cutting their interest rates to end their recession.
This rebellion will be the more violent because unemployment on the continent is already dreadfully high- on average just under 11%; on top of that Europe's citizens are paying high taxes (nearly 50% of their incomes; ours are under 40%) and facing yet higher taxes to deal with their states' debts which are large and rising rapidly, and with their bankrupt state pensions schemes. Ordinary people will rightly judge that Europe and the Euro are not working. There will be political instability and economic unrest- the Euro is likely to collapse sooner or later.
3. The Euro would damage our economy too.
- First, we would suffer from having the same interest rate and exchange rate as the continent. 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. Those links would be upset because the Euro exchange rate would fluctuate much more against the dollar than the pound does. Furthermore we usually need to set very different interest rates from the continent as the Welsh economy and the UK economy generally has a very different structure to the continent's- 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. All this was well illustrated when we joined the Exchange Rate Mechanism in 1990; under that we were forced to keep our exchange rate fixed against European currencies in a sort of dress rehearsal for the Euro. It was a terrible failure and we were forced out of it by the speculators because of the dreadful recession it created here. It devastated the Welsh economy and pushed Welsh unemployment up into double digit percentages. Now after 8 years outside the European exchange rate mechanism we have re-established a successful environment; Welsh unemployment is right down and continuing to fall, with sensible interest rates that suit Welsh conditions.
The charts that follow reveal the strong correlation between the economies of Wales and the UK; and the UK economy has consistently been highly divergent from the European continental economy. Hence what is true of the UK is also true of Wales; any suggestion that somehow Wales is a special case, closer to the continent than the UK as a whole, is extremely misleading.
- Second, continental 'co-ordination' in the name of the Euro would damage Welsh competitiveness and ability to create jobs; the Welsh economy is relatively flexible and deregulated and this has been the engine behind its success in bringing unemployment right down. Britain is now the entrepreneurial centre of Europe and Wales is a dynamic part of the new service economy that is pushing Britain's growth ahead of that in the over-regulated continent. Continental-style taxation and regulation in the name of the Euro would destroy all that- unemployment in Wales and the UK would rise to the same terrible levels as on the continent.
- Third, our living standards would be at risk from having to bail out continental debts and pensions. Most continental states face greatly increasing deficits on their pensions; for example the OECD has estimated that Italy will probably need to raise taxes or pension contributions by over 10% of national income, meaning over 15% of wages, within the next 20 years; in other words its state pension fund is technically bankrupt. Germany and France's systems are barely in any better shape. The UK's state pension fund is by contrast solvent, with prospective contributions roughly equalling pension commitments. On top of these pension problems continental countries have severe general public finance difficulties. Tax rates are already very high as we have seen, their public debts are in several cases close to or above 100% of their national incomes and yet they have deficits of about 3% of their national incomes because the pressures for spending are so great. In theory we would not be liable for their debts; but in practice we could well be under great pressure to bail them out under the new arrangements building a Euro super-state- just as we do not let a local authority go broke in the UK, so in the United States of Europe with countries, which will be little better than local authorities. It would be the last straw for the Welsh, having gone through hell to reform and reinvigorate their economy, to find themselves paying the bill for Italian welfare junkies.
4. There is no disadvantage in staying out, as the propaganda claims; on the contrary staying out will allow us in Wales to preserve our competitiveness and flexibility as a great trading nation.
The propaganda claims that other countries in the Euro would raise trade barriers against us- a trade war in other words. Ridiculous! First of all, protection is totally illegal under the very Treaty setting up the Euro. Just as importantly, because we import far more from the continent that they import from us, a trade war would hit them far worse than us; they would be mad to try it. This threat conjured up by the black propaganda for the Euro is a fiction and a bluff.
The other, related, propaganda claim is that job-creating foreign investment would stop coming to Wales if we stay out of the Euro. The contrary is the case. That investment comes here because we are competitive, purely and simply- our costs are low, our workers do not strike, we have less red tape and we speak English, which most foreigners find easier. Investors also know that our policy, in line with market forces, is to keep the pound competitive over the long run. So there is not only no need to be in the Euro, there is also the severe damage to our competitiveness from going in that we saw earlier.
What it all amounts to is this: by joining the Euro we would lose our sovereignty and UK-based democracy (the oldest in the world), our competitiveness and our ability to control our economy so as to stop slumps. It is not just bad economics, it would be to give away our birthright as a free nation. Welsh people should say no to such dangerous nonsense.