No time for the Euro


Now that the pound has fallen so dramatically against the Euro, there are a lot of people saying how much better off we'd have been had we joined it years ago. And there are even more others who are saying that we should join it now so that we'd have a currency with at least some value left in it. And there are yet others who say that now, when the pound is low and our exports are cheap, would be the ideal time to join, because then our exports would stay cheaper than other members', and we'd coin it. All these views are wrong.

You can only have one interest rate in a currency area, so if we joined the Euro, we would have handed the control of interest rates over to the European Central Bank. Their interest rates have been lower than ours: indeed, one of the 1990s arguments for joining used to be that we'd have lower interest rates so mortgages would be cheaper. In other words, if we had joined the Euro years ago, we'd have had an even bigger (but equally fake) boom than we in fact had, house prices would be even more astronomical, and the inevitable bust would have been even more painful than it's now going to be.

We're lucky not to be in the Euro, because at least we can let our exchange rate take the strain of the adjustment we now need to make. Things are bad, so the pound is falling, but that does indeed make our exports cheaper and perhaps we might just be able to sell a few goods and services to any other country out there which is still buying. If our currency had remained high at Euro levels, we'd be locking up more factories and closing down more insurance companies and language schools, because our prices, seen from other currencies, would have remained higher.

But while a cheap currency can get you out of a hole by making your exports cheaper, it can't save you forever. The other side of the balance is that your imports are more expensive. Much of what we import is used to make what we export, so that's not good. A lot is food and energy, which it's hard to live without, so that's not good either. And if we start making things inefficiently at home because it's too expensive to buy from efficient producers overseas, that's neither good for us nor them.

No, it's not the right time to join the Euro. Given the diversity of Europe's economies and ours, I'm not sure it ever will be.