Airstrip One

What do the Europhiles think? - 9th June 2003, 22.23

Jeremy Warner in the Independent takes a far more sceptical view of Brown's Europhilia than myself. The obstacles placed in the path of entry to the Euro appear to have been crafted in order to avoid staging a referendum which the government has recognised that it could not win at this point in time.

Again, the reality of his own findings and words is very different. Leaving aside the issue of whether such a fundamental barrier can be magicked away with a wave of a couple of Government reviews within the space of less than a year, to which the answer is a definitive no, the assessments also flagged up a whole host of other obstacles.

The Chancellor put forward a substantial programme of domestic and European reform, which he deemed necessary to achieve the required degree of convergence, none of which is likely to be completed in the course of the next year. One of his demands is for reform of the European Central Bank, an independent organisation where Britain outside the euro has virtually no influence at all. The Chancellor also requires reform of the Stability and Growth Pact.

In no particular order of importance, the others were, reform of public sector pay to include a regional and local element, further reform of domestic and european labour and capital markets, reform of the inflation target, changes in the planning system to allow for the construction of more housing and in the market for long-term fixed-mortgages, pursuing the British agenda for tax competition rather than harmonisation in Europe, proposals for a new system of fiscal reporting to Parliament, and so on and so forth.

Warner, in the article, recognises that the British economy requires a rise in interest rates of 1.5% to counter a rise in the inflation rate of 1%. Membership of the Eurozone would remove this tool for fighting inflation and this argument has been reproduced by opponents of the Euro on many occasions. Warner points out that Brown engages with this argument, but only to produce policies that would attempt to overcome this vulnerability to inflation.

The difference between the Chancellor's stated position on the single currency and that of the confirmed eurosceptic is that the Chancellor thinks a degree of economic convergence can eventually be reached such that Britain won't require a 0.5 point real rise in interest rates to deal with a 1 point rise in inflation.

This includes the structural changes to the housing market that the Chancellor may start to introduce at the next Budget. Warner concludes that the policies will not provide the changes necessary to assure convergence with the Eurozone in the short term and that this will prevent the staging of a referendum. However, by acknowledging the argument and taking perceived steps to counter this economic divergence from Europe, the Chancellor may be planning to persuade the public and the Labour Party that he has taken sufficient steps to overcome the economic arguments put forward for staying out of the Eurozone.