How to decide - part 2Although the single currency is most obviously an economic project, the political issues have proved particularly persuasive in public debate. This is hardly surprising since for centuries the national currency has been such a potent symbol of the nation state. There is widespread concern that giving up our own currency means surrendering our sovereignty and our ability to determine our own future as we see fit. Doesn't a single currency inevitably lead to a single European superstate? Nothing represents these concerns more than the question that the tabloids have often asked: what will it do to the Queen's head on our notes? These emotive issues are likely to be far more influential in a referendum than the relatively dry and arcane arguments about economics, as the Danish government found to its cost. It argued for joining the euro on largely economic grounds, only to have the public reject it in a referendum for political and cultural reasons.
Will the government lose control over our interest rates if we join? Yes Interest rates will no longer be set in London by the Bank of England, but in Frankfurt by the European Central Bank. When the Bank of England's Monetary Policy Committee meets once a month to set rates, all its members consider is what is best for the UK. In contrast, the ECB committee is made up of unelected foreign central bankers who will easily out-vote the one British representative. They are appointed by foreign governments, and once appointed, politically unaccountable. When they discuss whether to raise or cut interest rates, they are meant to consider what is happening in the wider European economy - in particular Germany, the largest Euroland economy - with just a glance at Britain's needs. No We don't have democratic independent control over our interest rates now - they are largely determined by economic developments in the global economy and by well-tried financial rules. If the European Central Bank raises interest rates, that puts extra pressure on the Bank of England to follow suit. Nor would it be less democratic in Euroland than it is now. Since the Labour government granted independence to the Bank of England in May 1997, politicians have had no say in Britain's interest rates. Instead they have been set by a committee of appointed bankers and economists (some of whom aren't even British). Almost all economists agree that with their technical expertise, ability to think long term and freedom from electoral pressures, central bankers are much better at setting interest rates to ensure stable and low inflation than politicians. Will Brussels dictate our taxes? Yes The euro project is called EMU - Economic and Monetary Union. Its designers see unifying the currency as just the first step to unifying taxes, and for very powerful economic reasons. For the euro to work effectively, it requires strong co-ordination between interest rates and how governments tax and spend. It will not work if national governments repeatedly undermine the European Central Bank's interest-rate policy by altering taxes and changing spending. It will be as though the ECB is pressing the brake while the national governments are pushing down on their accelerators. To work effectively, the euro will require a large central budget to even out the adverse effects of the one-size-fits-all interest rate. This central fund will be needed to make booming regions bail out ailing ones. This large fund can only come from taxpayers. It is the official policy of both the European Commission and the European Parliament to harmonise taxes. If we join the euro, as well as the political and economic pressure to harmonise taxes, we will be accepting explicit and direct controls on how much the government can tax and spend, as a result of the Stability Pact. We saw the effect of this recently when the Commission chastised Ireland for not setting a strict enough budget. No British tax levels and the issue of membership of the single currency are completely separate and totally unrelated. Britain retains a veto on tax issues in the Council of Ministers, the highest-level body in Brussels. If Britain doesn't want tax harmonisation, it simply will not happen. Brussels and most of our EU partners tried to force the UK to change our 'withholding tax' on savings, but we resisted. In any case, there is no need to harmonise taxes - indeed it would be a hindrance. If recession looms in one country, its government can kick-start its economy by cutting taxes or raising public spending of its own accord. This use of our national budget would enable a British government to stabilise our economy over the business cycle and counteract any adverse effects of the 'one-size-fits-all' interest rate.
Wouldn't it mean surrendering sovereignty? Yes Joining the euro would involve a major surrendering of sovereignty, severely hindering our ability to run the economy as we see fit. We would lose control over interest rates and the ability to manage the economy through taxing and spending. Instead, it would be run by European committees. If we join the euro, we will be accepting direct and explicit legal constraints on the government's ability to tax and spend. If we were to go into recession, the government would no longer be allowed to spend its way out of it. Under the rules of the Stability Pact, we would not be allowed to have a budget deficit of more than 3 per cent of gross domestic product (GDP), and we would have to keep overall levels of public debt below 60 per cent of GDP. If we broke these rules, we would be subject to massive fines of billions of euros. Most leading bankers and politicians believe that for the euro to do well, most big economic decisions - such as those on taxation and spending - will have to be made centrally. The decision to set taxes and make decisions on public-spending priorities is central to any nation state. No These constraints are there to stop any one country free-riding on the others and make sure they pay their own way. Not building up excessive national debts is something that countries should do anyway, for their own long-term wellbeing. Within those constraints, countries would be able to tax and spend in whatever way they like. They can pursue high-tax and high-spending policies (like France) or go for low tax and small government (like Ireland). When it comes to interest rates, we would in some ways get more sovereignty. Being represented in the European Central Bank would give us more influence, because we would be there as part of the decision-making process, not just having to accept decisions made by others that have a profound effect on us. We will be pooling our sovereignty, not losing it. Compare it with an individual person. If you were abandoned on a desert island, you would have total personal sovereignty to do exactly what you want. But you would still want to surrender that total sovereignty by coming back to civilisation - and all its laws and regulations - because that would be a small price to pay for the benefits of living with and co-operating with others. Doesn't monetary union inevitably lead to political union? Yes In Britain, politicians pretend that the euro is just a matter of economics, but in Europe politicians are open about the real agenda: the creation of a single European superstate. Many economists and central bankers say it will be essential if the euro is to succeed: there has been no example in history of a significant currency union without political union. Central bankers warn that the euro can succeed only if there is central control over policies of taxation and spending, and it isn't made up of nation states all pulling in different directions. The highly respected German Bundesbank issued two formal statements, in 1990 and 1992, saying that monetary union would be durable only if accompanied by political union. No Britain has the right to veto any changes to the way Europe is run. The key decision-making body in Europe is the European Council, which consists of the elected heads of government of each member of the European Union. We can block any changes we don't like. History also proves that you can have monetary union without political union. The Irish Republic was in a currency union with the UK from 1921 to 1979 without becoming part of the UK. Brussels and Luxembourg had a successful currency union for many years while maintaining separate governments. In any case, integration of some sort shouldn't just be seen as a drawback. After a 70-year period when Europe went to war with itself three times, closer integration has ensured no war in western Europe for half a century.
CULTURE For Britain, it will mean ditching what is probably the oldest continuous currency in the world. The British have far more historical, cultural and political attachment to their currency than, say, the Irish have to the punt, which had only been established with the birth of the Republic, and uncoupled from the pound sterling since 1979, or the Italians to their wonderfully disappearing lira.
Wouldn't losing the pound mean losing an important national symbol? Yes The pound sterling is a major national symbol for Britain. Since King Heabearth of Kent copied the monetary innovations of Charlemagne, and launched the pound in 765 AD, it has served us well for 1,200 years, through the Middle Ages, Empire and two world wars. It has spent much of its existence being the dominant currency of the global economy. It is as old as the language we speak, and has become part of our literature. 'In for a penny, in for a pound' doesn't sound quite the same as 'in for a cent, in for a euro'. Europe is already trying to get us to get rid of pounds and ounces, and now we are being told we have to get rid of pounds and pence. It is all part of the harmonisation imposed from Brussels, and the rubbing out of national differences. The loss of the pound will be a severe blow to British identity and culture. No The pound has had a long history, but not always a proud one. It has lost more than 96 per cent of its value in the last century as it faltered and devalued and had to be rescued. The history of the pound also illustrates its changeable nature. It has spent most of its life being a purely notional currency, and only in 1489 did the pound come into physical existence with the launch of the gold sovereign. When paper currency was introduced in the nineteenth century, it caused uproar, with people declaring it immoral. And people protested about change when we got rid of shillings and decimalised the currency. Nor is it a significant part of our identity. If you ask people in the street what it means to be British, they are more likely to say the Queen, democracy, tolerance, a sense of humour, support for the underdog and football, than they are the pound coin. It is rather sad to insist that our national identity is so weak, that it depends on the coins in our pocket. The French would laugh at such an idea.
Would it mean the end of the Queen's head on our banknotes? Yes The euro notes, standardised across Euroland, will not have the Queen's head on them. Originally, there was to be a space for a national emblem. But in a typical act of euro-harmonisation, this was ditched. They will now have the same design in every country. If we join, Eurocrats and foreign politicians will have succeeded where Hitler failed, in knocking the Queen's head off our notes. No It is true that the Queen's head would not be on our euro notes - but Hitler could never have achieved this feat for the simple fact that we did not have the Queen's (or any monarch's) head on the notes until after the Second World War. The Queen's head has only been on the notes since 1960, and she still isn't on the notes in Scotland and Northern Ireland. In contrast, we have had the monarch's head on our coins since the Middle Ages, and that will continue. Countries in Euroland can put a national symbol - such as the Queen - on one side of each coin.
Won't it be confusing using new notes and coins? Yes It will be far more confusing than decimalisation, when the prices in pounds stayed the same, and only the pence part changed. Then we kept the same notes, and many of the same coins. Adopting the euro would mean an entirely new set of prices, and a new coins and notes. Consumers would suffer a double whammy of confusion, with the changeover coming shortly after shopkeepers had to change from weighing things in pounds and ounces to kilos and grammes. No Any confusion will be reduced by a period of dual pricing - where shops show prices in both currencies - followed by a period of dual circulation, with both coins in use at the same time. This will give customers sufficient time to get used to both the new prices and new coinage. It is a short-term, one-off effect which will quickly be overcome. When people go on holiday, even the most financially illiterate feel at home with a new currency within a few weeks, and it will be the same with the euro.
SHOULD WE JOIN? Even the most passionate Eurosceptics and Europhiles concede that there are strong arguments for and against joining. People tend to want to become part of the euro on the grounds of economic arguments, and want to stay out of it for political ones: but what matters more, politics or economics? Even within the realm of economics, there are clear benefits and costs to either course of action. Then there are also questions of timing, of whether the euro is successful, and if we join, can we get out if we don't like it? If the euro were to show signs of falling to pieces, it is unlikely that a British government would try to take us in. Shouldn't we just put aside all these academic arguments, wait and see whether the euro works, see how we do outside it, and then decide? Or will that leave us permanently behind the rest of Europe? Many of these answers are a matter of opinion; some issues will matter more to some people than others. But, having considered all the issues, the ultimate question you must ask yourself is: do the benefits of joining and the costs of remaining outside the Eurozone outweigh the costs of joining and the benefits of remaining outside? Or not?
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