Gary Titley, MEP: "The Euro in Your Pocket"

This is the text of Gary Titley, MEP's talk, taken directly from the Deane-Cum-Heaton Labour Party's Branch minutes.

Gary passed out copies of a previously circulated European Outlook dealing with the single currency and the timetable for its implementation. Adoption of the Euro will mean economic and monetary union for the countries taking part. Monetary policy will thereafter be decided by the European Central Bank.

  Who? When?

Of the countries of the EU only Greece (didn't qualify), the UK and Denmark (opted out) and Sweden (voted against in a referendum) will not join the other 11 countries in monetary union. Euro notes and coins will not appear until 2002 but the exchange rate of the participating currencies will be fixed against the Euro from 1st January 1999 and from that date goods in the shops in participating countries will be priced in local currencies and the Euro.

  It's Nothing New

In the UK Marks and Spencer, and probably other retailers, will accept payment in Euros. Gary quoted the editor of the Economist who had said, "If Britain does not join European monetary union it will be left out in the cold". That quotation was from 1865 when the first plans for a single currency were being made. It's nothing new!

There are already examples of adoption of a common currency on a smaller scale but this is the first time that it's being attempted in such a big way. Despite what all the pundits and economists say, no one really knows what's going to happen. It's an adventure, a gigantic step in the dark. If, for some reason, such as the collapse of the Russian economy, it doesn't happen now there will be a catastrophe far worse than anything that could happen will when it does go ahead.

  For or Against?

There are big arguments about the single currency but overall the balance is just in favour. Whatever happens big changes are about to take place. Even the UK, which is not yet participating, will not just carry on as before. It will affect us too. The single currency is as much about politics as it is about economics and you can use exactly the same arguments against it as in favour.

On the question of national identity it allows better control of the economy and therefore aids sovereignty. Against that you can argue that full control of the national economy will be lost.

One of the main arguments is that the European Union was set up to get rid of trade barriers, Customs, rules and regulations. We now have a single market but the last obstacle to free trade is different currencies with fluctuating exchange rates. The single currency completes the single market. In a global economy it's possible for the likes of George Soros and other speculators to "pick off" specific currencies and make millions at the press of a button.

Many of us can remember previous "runs on the pound" that forced previous Labour governments to devalue the currency. The volatility of the currency markets is much more pronounced now and the danger of speculators much greater. The single currency will be strong and resistant to speculation, it will deliver price stability and with that inflation will be low and growth, although slow, will be steady. Companies and individuals will avoid exchange costs when paying for good from outside the UK or when holidaying.

It is estimated that the overall benefit to the UK economy will be £12 billion - what we spend on Education. It should lead to an extra 0.5% economic growth and up to an extra £45 billion could accrue to the Exchequer. Up to 1.1 million jobs could be created according to the German model. Transparency of pricing, e.g. for motor vehicles, will enable comparisons to be made more easily and keep prices of goods down.

Against the single currency is that the convergence criteria are deflationary since participating countries need to have their economies at a similar stage. Economic policies to produce convergence result in a loss of sovereignty. Devaluation will not be able to be used as an economic tool as in the past.

The Central Bank which will "run the money" will be politically independent and there is an argument that the European economy shouldn't be run by non-elected bankers. However, national governments will still have complete control over their own expenditure and it should be remembered that the total EU budget is only 1.2% of the combined wealth of the member states, less than the UK NHS budget.

  Harmonising Taxes?

There would be pressure for harmonisation of VAT and excise duties within the single currency area as those too are anti-competitive. Politically, within the UK, the Tories were completely split on the issue and still are. Our government has taken the decision to "wait and see" if it will work and, if likely to benefit the UK, will recommend the public to vote in favour in a referendum that is unlikely to take place until after the next election.

If it works and we don't join we could miss out on the inward investment that will inevitably follow. If we stay out for a long time the pound could be a target for speculators and the City of London will lose its pre-eminent place to Frankfurt in the financial markets.

  Questions and Answers

Gary's address was followed by questions:

      George: The clash of cultures will cause problems.

      John & Anne: Why wouldn't the British people accept the single currency?

      Graham: Despite the convergence criteria the economies across Europe are different and at different stages and one thing they have been able to do in the past is to raise interest rates.

      Anne: Workers will be able to compare wages as well as prices.

      Paul: The Euro is a really bad idea but we have no option but to join it. Europe will become more and more rich in the centre and poorer and poorer at the fringe. The "new Europe" will need an enormous social fund.

Gary: The £ is so high because the speculators have been hedging their bets that the Euro will not be successful and they have therefore been buying our currency. Once the Euro is introduced our government is expecting that the money will transfer to Euros and the £ will come down somewhat. Decimalisation was a rip-off and Britons are worried that the Euro will be a rip-off too.

Although there may be some social culture clashes the most important one is between the UK and Germany over inflation. Germany and Austria are paranoid about it whilst the Uk seems to think that "a bit of inflation" isn't such a bad thing. Yes, there are cultural differences between northern and southern Europe. The Italians and Spaniards support the single currency because they have no faith in their national governments. They see the EU as a substitute for their own weak governments. The black economy and cronyism will really lose out when the Euro is introduced. There will be greater democracy and accountability and a change in culture from secrecy to openness in the Central Bank.

Yes, there is fraud in the EU but it is more often than not as a result of national governments' mishandling of EU money. Chirac is a bit unstable and got himself really wound up about the appointment of the Governor for the Central Bank.

A currency goes to the heart of a nation's identity but, if the single currency works, there will be a 2/3 majority in favour in a UK referendum.

The interest rate thing isn't as black and white as it would seem. There will be variations, especially in the rates that governments pay for borrowing.

Will there be a levelling up or down of wages? Well, German re-unification is an example of a situation where this has caused unemployment. Generally, levelling of wages would not be a good thing for national economies.

Yes, Germany has higher pensions than the UK but has a high rate of unfunded pensions. In the UK we've started moving away from unfunded pensions but in Germany there is a pensions timebomb waiting to go off. The German situation will be the case in many countries. The cost of changing over to the single currency would be about £1 billion to the UK, similar to the projected cost of the millennium bug. This would be more than paid for by the stimulus to the economy of the spread of funded pension schemes.

      George: There are worries about the influx of refugees. Up to a million have already entered Italy.

Gary: Yes, there are problems but EU borders are being toughened up and there will need to be more action to stop more and more "economic migrants" entering. There is a lot of concern about illegal immigration and refugees. There will be the need for emergency aid to Russia this winter. But neither of these factors will affect the single currency.

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