On the Euro

the ECB building in Frankfurt

Niall Ó Conghaille and Mike Galsworthy discuss the Euro and its role in the rejoin process. This is what I think.

While I agree, that for the UK to rejoin the European Union it is necessary for them to agree, in good faith, to join the euro. …

Your arguments in favour of the EU insisting that the UK agree to join the Euro do not address the embedded macroeconomic theory within the stability and growth pact.

The ECB has a mandate to pursue price stability before growth or employment. That is a choice, and one that should be taken democratically, not embedded in an almost impossible to change treaty.

The financial tests of the Euro are deflationary and currently many of the large countries inc. Euro members fail to meet the criteria because they, i..e the criteria are bonkers or to use a more professional term, the democratically elected governments, with time-limited terms have decided that it is not in the interests of, nor supported by their voters.

It would be useful if advocates of the Euro spoke of these disadvantages; you ask us to support the Euro, in fact suggest that negotiations will fail unless we agree to join, but austerity economics is high price to pay. It would help if those who agree said so and held out a prospect for change.  …

The economics hurdle for rejoining!

This was published on the London 4 Europe web site, arguing that the Euro and “Banking Union” are potential political obstacles to rejoining. I just observe that the author has not caught up with the change in macro-economic management, the Stability and Growth Pact has serious credibility problems given the numerous breaches. We can hope that with a new coloured government in Germany the deficit fetishism of the EU will be weakened. Secondly, banking regulation is global and emanates from the G7 and BIS in Basel. The EU has little room for manoeuvre, although of course, should it be in a position to join BIS that would change things. This is an article designed to show how clever the author is and fails in that goal.

The ECB, Frankfurt CC DFL 2011 BY-SA

I note the article focuses on Sweden, which has agreed to adopt the Euro and not Denmark which has an opt-out. When we get to negotiating re-entry, the size of the UK economy and the sterling zone will be issues which may lead to us being given an opt-out or a Swedish deal, although I was interested to note that Nordea, Sweden’s largest bank has moved to Finland to locate in the Eurozone.

A serious analysis will come later, when both parties need an answer dealing with transaction volume, prudential regulation and fundamentally macro-economic policy. Let’s note that we had an opt-out of the compliance clauses of the SGP, we doubt we’ll be getting that back.

Macro-economics will be a problem if we have a left led Labour Govt., that wanted to pursue a policy of full employment but more importantly will be the need to meet the democracy criterion of the Copenhagen Criteria, where parliamentary sovereignty, the House of Lords and first past the post together may be seen as obstacles. Starmer’s Labour lacks the will to confront the issue of rejoining the EU but would probably welcome the shackles of today’s Stability and Growth pact. Actually, the Stability & Growth Pact is a serious barrier to rejoining for the Left; perhaps the sterling zone will save us from that too.  …