Arnold Kling  

Should Britain Join the Euro?

21st Century Trade Barriers... Surveys Vs. Revealed Preferenc...

This is a fierce debate. The partisans in favor write,

By removing the barriers of separate currencies, the creation of the euro has led to a rapid increase in cross-border trade in the euro-zone. Germany's trade with the EU has leapt from 27% of national output in 1998 to 32% in 2001. France's trade with the EU has risen from 28% of GDP to 31%. Overall, the average rise in euro-zone countries is 3 percentage points. Meanwhile, Britain’s trade with Europe has stagnated.

Norman Lamont, an opponent writes,

increased trade in the euro zone has completely failed to translate into extra growth or jobs. The exchange of goods in itself is not the final objective of policy. The OECD for 2003 expects the euro-zone's unemployment rate to be 8.8% compared with Britain's 5.4%, and economic growth of 1% compared with Britain's 2.1%.

I agree with Martin Feldstein that Europe is not an optimum currency area. It is not clear that Britain wants to tie its macroeconomics policies to Europe's.

As far as trade is concerned, I continue to believe that differences in language are more important than differences in currencies. If I were British, I would offer to join the euro as soon as other European countries agree to adopt English.

For Discussion. Proponents of the euro say that it will lead to "harmonization" among European countries, with fewer institutional differences. Is that a feature or a bug?

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COMMENTS (8 to date)
David Thomson writes:

“If I were British, I would offer to join the euro as soon as other European countries agree to adopt English.”

I also believe that it makes no sense to join a group of losers. The Old Europeans are too committed to their socialism---and like many delusional alcoholics must hit bottom before admitting the errors of their ways. Heck, France is currently experiencing civil strife just because it’s asking workers to work a few more years until retirement. The system is virtually bankrupt, but their spoiled and lazy citizenry still refuses to face reality.

“Proponents of the euro say that it will lead to ‘harmonization’”

Yeah, and this reminds me of the “harmonization” of some alley cats. The resulting harmonizing sound of the French, Germans, and other Old Europeans, would likely be similar to a bunch of drunks singing the best of Ozzy Osborne.

Tomas Kohl writes:

It's a feature - harmonized stagnation, unemployment and over-regulation for all.

David Thomson writes:

It must also be added that Great Britain is hitting a brick wall. Its radical utopians have caused enormous economic and cultural damage. For instance, a man is currently sitting in prison for defending his own home with a firearm. Justice officials have literally claimed that burglars must be protected form this individual! Am I exaggerating? Not in the least. Please read the following article:

In other words, the citizens of the British Isles don’t have the luxury of surrendering even more to the vices and silliness of the Old Europeans.

I whole heartedly recommend the reading of Theodore Darlrymple’s “Life at the Bottom” and Peter Hitchen’s “The Abolition of Britain: From Winston Churchill to Princess Diana.” These two splendid works clearly show that the British have little time to turn back from Armageddon.

Brian writes:

I think harmonization is a feature because it's my understanding that the French and Germans have from the beginning of the EEC sought harmonization to prevent conflict. I think it's really "homogenization" (as far as countries with different languages can be homogenized).

Neglecting to introduce the euro currency would be a bug if homogenization is being persued regardless and relentlessly.

Freddie Staermose writes:

How is it possible to harmonise the euro-zone monetary policy when we see countries such as Germany in deep pockets of recession, yet countries such as Ireland so buoyant?

Freddie asks:

>How is it possible to harmonise the euro-zone monetary policy when we see countries such as Germany in deep pockets of recession, yet countries such as Ireland so buoyant?

If you try to use monetary policy to influence employment or recessions, then indeed it will be a hopeless goal to try to unify currencies across countries undergoing such disparate economic conditions.

But if instead you use monetary policy to stabilize price levels and promote ease of international trade, then there is no conflict. Stable price levels are independent of business highs and lows. (Witness for one example the United States in the last ten years, where both the business boom and recent recession have not been accompanied by any substantive inflations or deflations.)

Which goals should the makers of monetary policy subscribe to? It's been known since the early 1900s that one single monetary policy tool can't accomplish all possible goals simultaneously: you have to choose amongst sometimes contrary goals. Economic evidence and theory since the 1970s have suggested that monetary policy is not effective in curing recessions. By giving up attempts to influence short-term individual national economic conditions and focussing instead on effective long-run goals such as price stability and ease of trade within optimal currency areas, there is at least some hope that harmony can result.

This is not to say that there are no reasons for a country to not participate in a unified currency area, but just that differences in business-cycle fluctuations across countries are not a well-grounded excuse.

R.Scullion writes:

Britain can not sustain itself on service-based industries alone, and that is where it is headed. The high interest rates keep the City buoyant while the rest of Britain sinks, joining the Euro is the only plausible solution and therefore must do this before industry is battered anymore

Phil Bacon writes:

Balls to your Euro!

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