Airstrip One

No News - 9th June 2003, 20.07

The announcement by Gordon Brown on whether a referendum would be held on the Euro was so heavily trawled in the media over the last few weeks that tomorrow's headlines will contain no surprises. A Chancellor who places great emphasis on prudence and the perception of stability requires his appearances in Parliament and the media to reinforce the view of a steady hand at the tiller.

It will come as no surprise that Brown stood up in Parliament and stated that the tests had not been met. On all of the criteria, he said that there had been moves towards convergence though these were insufficient to justify a referendum in the British national interest. A draft referendum bill would be published in the autumn preparing for a possible campaign in the later stages of this Parliament, after a (mooted) reassessment in the 2004 Budget.

With all of Brown's campaigns to undermine the competitiveness of the UK economy, the small print contains the indications of his next move. His statement should prove sufficient to dispel the notions of any hopeful Eurosceptics who imagine the dour Scot to be their champion within the Cabinet. The Chancellor has accepted that leadership within a Europhile Labour Party requires acceptance of the Euro and, with ill-tempered pragmatism, he is attempting to engineer the British economy to fit the needs of the Eurozone.

Brown has identified the key problem preventing entry to the Euro as the housing market. The overwhelming proportion of mortgage debt is held on variable rates, making the British consumer very sensitive to changes in interest rates. This is one of the principal reasons for the higher economic volatility of the British economy after the breakdown of the Bretton Woods system as compared to its major competitors. Brown intends to 'fix' the housing market by, as yet undisclosed measures, favouring inflexible, long-term debt over the current semi-free market that offers more diverse solutions. Given his record on pensions and other financial products, we can expect an injudicious mix of higher tax and bad regulation to facilitate entry to the Euro.

Rest assured that the Chancellor will manage to undermine the competitiveness of the British economy attempting to enter the Eurozone, long before the problems of a single currency add to this forthcoming blight.