UK outside the euro, has it been a good move?

While the euro economies have been lashed to the mast of a single monetary policy, Britain’s free-floating currency and flexible interest rates have allowed it to weather the global storms.

At least that is the  conventional wisdom in the UK. Sadly, the save-the-pound brigade hit something of a snag. The economic indicators tell a rather different story. Since the financial crash, Germany and France have fared better in the single currency than has Britain outside.

The two big eurozone countries have suffered a smaller drop in output since the hurricane hit in 2007. Britain has ended up with a fiscal deficit three times that of Germany and 50 per cent above that of France. As for prices, it is the Bank that has lost the plot. Britain’s 2 per cent inflation target has been all but abandoned. Prices in Britain are rising twice as fast as in the eurozone.

Ah, but wait, I hear Messrs Balls, Osborne and King riposte in unison. Britain has at least been free to devalue sterling. The value of the pound has dropped a hefty 20 per cent during the past few years. That would be impossible were Britain trapped in the euro straitjacket.

Perhaps I am alone in thinking it odd that a central bank should be so eager to debauch its own currency. The politicians, I can understand. Like Harold Wilson in 1967 they forever cling to the deceit that sterling’s depreciation has no effect on the pounds in voters’ pockets. Besides the now cheap pound that has lost much of its value has not led to a rebalancing towards manufacturing in any meaningful way,

Devaluation has been an addiction of the politicians and professional policymakers in charge of Britain’s boom-and-bust economy for the past 60-odd years. Back in, say, 1960, one pound would buy about 12 Deutschmarks. If Germany had kept its currency, today’s figure would be about two D-Marks. Funny how German exporters still so easily outsell the British.

One or two countries in the eurozone have indeed fared worse than Britain since 2007. Ireland and Greece are the notable examples. But this raises another problem. Have Mr Balls and Mr Osborne so lowered their ambitions for Britain as to see Europe’s two smallest economies as the most useful comparator?
The uncomfortable reality is that eurozone countries against which Britain more naturally measures its performance have suffered less as a consequence of the crash. If one goes back further – say, to the creation of the euro in 1999 – the growth performance of the three economies has been pretty much of a muchness.

In truth, the real lesson from all this is a more prosaic one. Those charged with steering the economy should show a touch of humility. The thread linking the multiple mistakes in British economic policymaking in recent decades has been the righteous certainty of those making the wrong decisions.

It is visible again now at the Treasury and Bank as the senior officials so complicit in Mr Brown’s boom tell Mr Osborne the only course is the ferocious fiscal squeeze on which he has now embarked. They may, of course, be right this time. But the record hardly leaves one brimming with confidence.

No comments:

Post a Comment