Backing sterling to win

Business for Sterling is a new campaign to set out the potential consequences if Britain signs up to EMU. Since our launch less than three months ago, support has snowballed, and one of the most encouraging trends is the number of young businessmen and women eager to back our fight. That’s because today’s generation of […]

Business for Sterling is a new campaign to set out the potential consequences if Britain signs up to EMU. Since our launch less than three months ago, support has snowballed, and one of the most encouraging trends is the number of young businessmen and women eager to back our fight. That’s because today’s generation of dynamic new entrepreneurs is determined to keep Britain a land of opportunity.

Until today, it’s fair to say that most businessmen and women have been far too busy creating successful companies to devote too much time to the ins and outs of discussions on the euro. Now, however, Business for Sterling is bringing a realistic, hard-edged, business focus to this crucial debate.

First we had the EEC, then the EU, now it is EMU: European Monetary Union, right? Wrong. EMU stands for Economic and Monetary Union. Monetary union means scrapping the pound and risking all on the great euro gamble. That would be bad enough, but what this economic union entails could prove even more disastrous.

The single market is important for British business and it is excellent news that the introduction of EMU coincides with a period of sustained economic recovery on the continent. Whether Britain is in or out of the euro-area it is in our interests for the single currency to succeed and prosper. We in Business for Sterling wish EMU well.

Nevertheless, we are keen to discount the myth that the great majority of the business community favours early UK membership. Like many other businessmen and women, we believe EMU carries particular problems for Britain that are not necessarily shared by our European partners many of which are already in de facto economic and monetary union with each other.

Our main concern is that while the Bank of England runs our monetary policy according to the UK’s needs, the European Central Bank would decide rates for the whole of the EMU area, of which the UK would merely be a region.

In addition, within EMU, the Treasury’s freedom to manage revenue and spending would be constrained by the ‘stability pact’ and the growing momentum of European tax harmonisation.

EMU is essentially a project of political integration. This is widely acknowledged by many of Europe’s leading politicians. Addressing the Council of Europe in September 1995, Chancellor Kohl, a leading architect of EMU, said: ‘We want the political unification of Europe. If there is no monetary union, then there cannot be political union, and vice-versa.’

This means that as well as one currency, Europhiles want one economy. Same interest rates, same income tax, same VAT. In addition more of the red tape and burdensome regulations which hold back enterprise on the continent would be imposed in Britain.

On all the key economic criteria, our country is simply the best in which to create wealth. Just compare basic rates of income tax: in Britain it is 23% but in Germany it is 29%, in France 33%, and in Italy a whopping 34%!

If the UK’s economy mirrored that of Euroland we would be less concerned. But it does not. The widespread use of variable rate mortgages makes Britons uniquely sensitive to interest rate policy. Moreover, the British and continental business cycles are out of step (as they have often been in recent years, notably at the time of the ERM crisis). Any convergence would probably be unsustainable, because of well-documented structural differences.

A common Europhile myth is that Britain would experience a net economic gain by joining EMU. The opposite is true. According to latest OECD figures, of all inward investment coming to the EU, a total of 40% comes to Britain. Overseas firms, from the Far East to the US, choose Britain in preference to our continental neighbours.

Our combination of a sophisticated capital market, lack of prescriptive employment regulations, balanced trade union laws and cultural advantages make for a distinctive British advantage. This leading edge could be wholly squandered if we joined EMU.

During the 1980s we in Britain successfully rolled back the frontiers of the state. Corporatist thinking was held at bay and increasingly replaced by a free market ethos. These achievements were only won after many tough battles. We do not wish to see these gains swept aside by the imposition in Britain of a social market model economy comparable to those in mainland Europe. British business is in sound economic shape. Let’s keep it that way.

Lord Marsh, a Labour cabinet minister in the Wilson government, is chairman of Business for Sterling