The pro-EU lobby's arguments countered and the case for keeping the Pound

Dr Lee Rotherham

Arguments in favour of EMU rebutted

1. Price visibility. It should be easier under EMU to compare the price of identical products in different EU countries. This may increase competitiveness as consumers are given the incentive to shop internationally.

However, it is unreal to suppose that this would drive prices down, as (i) it takes no account of real differences in national market costs and local price differentials (local tax differences, wages or varying local costs of manufacture) (ii) A Single Currency already operates in the UK (the Pound) but the price of goods in London and the North can be vastly difference, e.g. house prices, groceries, or beer.

2. Facilitates transborder travel. No need to carry traveller's cheques - the example often used is the man who changes his currency as he travels round the EU. By the fifteenth capital city, he has only half his original money - the rest having disappeared in translocation costs before he has the chance to spend it.

But huge advances in electronic cash card debit mean that a single currency is already in existence - the flexible friend. Anyone can draw money via a foreign bank machine. EMU is out of date.

3. EMU encourages tight budgetary and fiscal policy. Maastricht criteria require strict economic management.

Yet Maastricht criteria can be met without joining Stage 3 of EMU (the Euro) - or even without signing up to Maastricht at all. It is an issue of optional domestic policy.

4. Removes floating exchange rate, so businesses can better plan ahead when dealing with foreign businesses.

But this argument takes no account of the procedure by which businesses can plan transactions using a basket of currencies. Some may strengthen, but others will weaken, thereby evening out. In any case, Sterling itself can be strong and weak, so even this in itself averages out over time.

5. Helps to build an ever-closer Union closer to the hearts of the European citizen. EMU is a visual symbol of European cooperation and integration.

Fine if you want to be part of a federal Europe. This is the real agenda. But we oppose it.

6. Makes life in border areas easier.

However, the UK has few of those - Northern Ireland and Gibraltar. And there, identity is important.

7. Creates globally strong currency to counter / complement Dollar and Yen.

This is an argument for paranoid French Government Officials.

8. Lower interest rates in the UK, with an effect on mortgages and business investment.

But we can have zero rates right now if we wanted to. The Bank of England only sets them high if the country needs them high. To drop them to continental levels wily nilly is economic stupidity.

9. Seen as securing the City of London as a global financial centre.

This is nonsense and scare mongering. The City actually will do better if it is distinct and different. We already handle most of the trade in euros while being out.

10. Fear that inward investros could pull out.

Again, these are groundless fears. Foreign investors like Britain because of our language, skills, and open work environment. Investment has continued despite our Maastrict opt-out way back in 1992.

11. Early entry will give the UK a greater voice in the development of the Single Currency.

True, it will give out Bank of England one paltry vote in the Central Bank. But Maastricht forbids Downing Street and Parliament even to lobby this vote.

Arguments against EMU

A floating exchange rate acts as a safety value. The Pound strengthened or weakens as the economy requires, thereby releasing tension on the other means of managing the economy (unemployment levels and interest rates), which have a direct impact on jobs.
Asymmetric shocks. Shocks which hit one region, industry or country hard are better absorbed if the currency takes some of the blow. It is not possible with one currency to cover different circumstances across one zone. Interest rate needs will vary from one area to another. the bigger the currency, the worse it handles a local crisis. A huge currency handles a national crisis poorly.
Gold and foreign currency reserves will have to be handed over in bulk to the Central Bank - billions of pounds worth.
Emu will lead to the centralisation of social security. Lack of a mobile labour force due to language barriers, means that regions of high unemployment would develop (as happens on a smaller scale today with Merseyside in the UK, Picardie in France and Naples in Italy). This pressure will grow for huge regional transfers to support regional / national unemployment. But the EU only has a budget ceiling of 1.27% of total national budgets, and this will have to grow, and be managed centrally. So it leads to one government for Europe to handle a giant tax system.
It could also lead to other policy pressures. An independent foreign or military policy could require the backing of the Central Bank, since it might call for the use of gold reserves or commitments beyond the now-limited national ones. Managers of the Euro could Veto another Suez, Falklands or Gulf War because they could breach treaty stipulations on common management of the currency.
Pensions. Huge liability and future debts exist on the continent, but there is a positive balance for the UK economy in the future because we more on private and less on state pensions. Pressure will grow for a central budget to handle this European problem - at UK expense.
Democratic accountability. Concerns are expressed at who holds the Central Bank to account. The answer is simple - nobody.
The European Central Bank has no track record. It will take time to acquire one for market stability. there was a notable poor start over the selection of Wim Duisenberg as Bank President, and again over Prodi's remarks about Italy leaving EMU.
Costs. Of the new computer system, tills, cash points, shop price re-jigging, minting 18 billion coins etc. This falls heavily on small and medium businesses, who can ill afford it.
Confusion. To consumers, particularly at the time of dual pricing.
Price hiking. Shops may round up to take advantage of price confusion and recoup transaction costs for changing currencies. Consumers pay.
Projected savings may be less that anticipated for business. The UK transaction services are highly computerised. Charges for money transfer and exchange in the UK may be extremely close to the real costs involved, rather than being invented bank charges. Thus savings from joining the Euro may be marginal. And most companies don't deal heavily in Euro business anyway.
An extract from EMU Understood: What the experts say about the euro ... in English Published by CAFE