Joining the euro: A leap of faith?

Simon Buckby, Chief Executive of pro-euro lobby Britain in Europe, invites you to take a hard look at the consequences of remaining outside the single European currency indefinitely.

With just a few weeks to go until the second anniversary of the euro's launch, UK public opinion has swung so decisively against it that hardly anyone dares back it publicly. Simon Buckby, however, has no doubt that the pendulum will swing the other way once economic circumstances change.

Oh, we will join the euro if it is in our economic interest to do so, he tells Business Europe emphatically. Of course, we're free to let (the eurozone) flourish without us, but let's not pretend that there will be no consequences from remaining outside.

Buckby stresses that he is no traditional pro-European. A former Financial Times and BBC reporter, he claims that he joined Britain in Europe out of frustration at the way knee-jerk media responses to European issues makes debating them impossible in the UK.

In keeping with his lack of formal ties to Europe, he keeps his arguments in favour of joining the single currency dispassionate and rooted in economic analysis. This, he argues, sets him apart from his anti-euro counterparts.

Many of the euro's opponents pretend that the EU is a looming superstate poised to roll across our borders. They're therefore simply not interested in assessing its economic benefits, he said.

This, Buckby argues, is a grave mistake. Although he agrees that it would make no sense for the UK to join the euro at its current valuation against the pound, he believes that UK businesses, large and small, are already paying the price for the UK's non-participation.

He cites the well-known example of car giant Nissan threatening to relocate its Sunderland plant to the eurozone so as to avoid currency risk exposure. He also argues that while the proportion of SMEs exporting directly to the eurozone is relatively low, the complexity of modern industrial supply chains is such that many more are indirectly involved in EU trade without realising it.

There are 17,000 SMEs in the (automotive industry) supply chain in the north-east alone. This is a critical issue for them, said Buckby.

He does acknowledge that Britain in Europe, backed mainly by business giants such as Unilever and British Airways, is seen by many SMEs as an essentially self-interested association of multinationals. However, he believes that when the time comes to vote in a referendum, many owner/managers will look again at the euro issue, and conclude that the single currency would benefit them as well.

At the moment, most of them are against it without really knowing why. When they're called on to vote, and therefore have to turn their minds to the issue, that may well change, he said.

As for the macroeconomic issues raised by euro membership, Buckby believes that the UK has everything to gain and little to lose by signing up to the single currency.

The benefits are those of stable exchange and interest rates, low inflation, and price transparency. He argues that the recent campaign against rip-off Britain is an early taste of the pressure to cut the cost of consumer goods that would come with perfect price-transparency across the EU.

In turn, he makes light of the potential pitfalls highlighted by anti-euro campaigners. In response to those who doubt that a single interest rate can ever meet the needs of several divergent economies, he argues that if the UK were to join, the European Central Bank would have to adjust its interest rate policy accordingly.

The UK accounts for 17% of the EU's GDP, about the same as France and only a couple of percentage points lower than Germany. The ECB would have to take notice if we joined. Remember also that any interest rate is a muddled average of the different needs of different sectors and different regions, even within Britain.

He also rejects the argument that joining the euro would put the UK under pressure to align its taxes with the higher rates found in most eurozone countries.That doesn't stack up. There's no reason why taxes can't differ from one region to another.

Buckby envisages a situation where eurozone countries, deprived of any influence over monetary policy, would instead adjust their tax rates in order to stimulate or dampen economic growth. He adds that at least four countries within the eurozone are just as strongly opposed to tax harmonisation as the UK, but did not see this as a reason for remaining outside.

Finally, Buckby dismisses the view that the UK would do better to remain true to its historical role as a global trading hub, arguing that this approach has already led to costly mistakes.

That was the argument against our signing the Treaty of Rome in 1957, and we ended up joining anyway in 1973 because it wasn't true. The problem was that by then, we were joining a club where the rules had already been drawn up against us. That's why we found ourselves stuck with the Common Agricultural Policy and disproportionately high contributions to the EU budget.

Moreover, the UK is again running the risk of economic isolation by not participating in the single currency. The point is, the euro is here now. As non-members, why should (the eurozone bloc) listen to us when the next crisis comes along?

He points out that major EU economic decisions are already increasingly being being discussed first by the 11 eurozone finance ministers. Known collectively as the eurogroup, their monthly meetings are gradually supplanting the old Ecofin gatherings of all 15 EU finance ministers.

The big remaining question, of course, is what will now happen to the 11-member single currency. Buckby is in little doubt that it will shortly recover from its slump against the dollar and the pound, and go on to establish itself as a strong and stable currency. Once this happens, he suggests, doubters in the UK will become more receptive to Britain in Europe's arguments.

However, this is perhaps the one area where his dispassionate, factual analysis of the issues breaks down, and starts to look something like a leap of faith.