So do we trust these bankers? ... Or the economists who claim to have all the answers on whether to join, asks Faisal Islam Observer Election Special Guardian Unlimited Politics Sunday May 20, 2001 The Observer Politicians have long been able to fish out the appropriate economist to back any position they want to sell to the public. Nowhere is this more apparent than in the debate over the euro. The arguments for British membership relate chiefly to the cost of dealing with fluctuating exchange rates. Supporters also say that if you rule out the euro for the next Parliament, as the Conservatives propose, multinationals will look abroad, inward investment will dry up and thousands of British jobs will be lost. Alternatively, how can a one-size-fits-all economic policy work across the eurozone's 12 countries? France and Germany are tugging it in different directions. This could remain an issue even if Labour's five economic tests for joining were met. But what evidence do we have that these imbalances would be any worse than the impact of Bank of England's decisions on Merseyside shipyards? In the jargon, Europe may not be an 'optimal currency area', but to some degree, neither is the UK. What makes the difference in the UK is that people are more likely to get on their bikes from depressed areas to booming ones such as Cambridge than they are to seek work in Cologne. And if there are serious regional imbalances, the UK government has the power to spend proportionately more money on the needy regions - as it does in Northern Ireland. That is the nub, say anti-euro campaigners. For the euro to work, Europe needs such transfers of spending, which eventually means stronger European government. The prospect of a United States of Europe may fill you with dread, or strike you as a wise response to globalisation. Either way, it is a political question. Accordingly, none of the main parties would take Britain in without a referendum. But two economic wild cards have now entered the equation: the performance of the European Central Bank and, surprisingly, the state of Britain's public services. The ECB would take over the job of setting UK interest rates. Its operations have been a success, despite a few presentational shortcomings. Markets were confused after officials hinted at imminent rate cuts that failed to materialise. Only after cuts finally came did it emerge that eurozone inflation had jumped to 2.9 per cent a year, well above the ECB's target. So would you trust these bankers? Perhaps it's just a matter of time before the ECB proves its credibility. It is damned if it doesn't act like the US Federal Reserve in the short term, but it would have no credibility at all if it followed the Fed blindly. Lastly, the issue of spending on public services may help explain the Chancellor's lack of evangelism for the euro. Gordon Brown's ongoing spat with the Commission shows to what extent the single currency could be a fiscal straitjacket. If Britain were to join today, Labour's attempts to bring the UK's transport, health and education infrastructure up to European standards could be restricted because of tough rules limiting budget deficits. Britain could suffer a permanent competitive disadvantage and low productivity growth compared with, say, Germany and France, thanks to its relatively poor record on capital spending. Hi-tech clusters in those two countries, for example, already have the transport links to accommodate rapid growth. That cannot be said of the UK just yet. Perhaps 'infrastructural convergence' is the Chancellor's tacit sixth test.
