The euro and inward investment

Roger Helmer MEP

The euro – the EU’s single currency – is a massive economic experiment that is spectacularly failing as we watch it. Germany is flirting with deflation. It has around 4½ million unemployed – double the UK rate. France has massive unemployment. Italy is dipping into recession.

Meantime some of the smaller euro-land economies have the opposite problem. Ireland and Portugal have faced unsustainable consumer booms. The European Commission itself has identified seven euro-land countries – more than half of them – suffering “unsustainable demand pressures” (or inflation, to you and me).

The so-called “Stability and Growth Pact”, which they told us was vital to underpin the euro’s credibility, has now been described by EU Commission President Romano Prodi as “Stupid”. It has delivered neither stability nor growth, and country after country in euro-land is rushing to repudiate it.

In the face of this emerging disaster, we have to admire the tenacity of the euro-luvvies, still struggling to make the case for Britain to scrap the Pound, as one by one their arguments are knocked down by the dire experience of the euro in practice.

Yet they pretend they have one shot left in their locker. They tell us again and again that, outside the euro-zone, Britain is losing inward investment, so growth and jobs are at risk. This argument is false, and they know (or ought to know) that it is false. Let’s look at the facts.

Ernst & Young, one of the UK’s most respected consultancy and accounting firms, has published its 2003 report on inward investment. It shows a global decline in foreign direct investment, but within that overall decline, Britain is maintaining its dominant share, and doing rather better than euro-land.

But the luvvies quote OECD figures, which appear to show a sharp loss in the UK’s share, and a sharp increase in Germany’s share. So who’s right, and what’s going on?

This gets a bit technical, but please hang in there, because it’s important. There are two kinds of inward investment. Imagine that a US company comes to Britain with £10 million, builds a factory, and hires 200 people. That’s what most people count as inward investment. It’s a new project that creates business and jobs. And it’s what Ernst & Young were counting in their report – new projects.

... if we want growth and jobs in the UK, the Ernst & Young figures prove that we’re better off keeping the Pound.
But technically speaking, company take-over activity is also, sort of, inward investment – for example when Vodaphone (in the UK) bought Mannesman (in Germany). Take-over activity, however, doesn’t necessarily create new projects and new jobs – indeed it often involves streamlining and job losses. But it’s included in the OECD figures.

So the truth is, that for new projects and new jobs, Britain has stayed in the lead without joining the euro, as the Ernst & Young report proves. But the weak euro during 2001/2 has allowed foreign companies to buy up euro-land firms in a bargain-basement fire-sale – which is why the OECD’s broader inward investment figures show Germany heading the pack.

The euro didn’t generate growth and jobs in Germany. But for a couple of years at least, the low euro left German companies vulnerable to foreign predators. Not such a good deal after all.

So the inward investment figures provide no comfort for the pro-euro case. On the contrary, if we want growth and jobs in the UK, the Ernst & Young figures prove that we’re better off keeping the Pound.

If the euro-luvvies don’t know this, they ought to. And if they do, they’re lying.