Hang on to the pound

Is it true that the low turnout in the European elections was because `voters do not feel sufficiently informed’, as Lord Marshall claimed in the last issue of The Engineer?

Most voters received 10 or so election addresses, and the media was full of analysis of European issues. While apathy was a factor, many voters stayed home in protest against Labour’s closed-list PR system – they wanted to vote for a candidate, not a party. Many more abstained because they are opposed to membership of the European Union and refuse to legitimise its institutions by voting. I know – because I spoke to thousands of electors on doorsteps.

Lord Marshall agrees that there must be economic convergence before we could join the single currency. But there is no plan or mechanism for convergence, and no likelihood of convergence.

With our high level of global trade and investment, our funded pensions, our oil production, our low level of dependence on manufacturing, our demographics and home ownership, we are much more convergent with the US than with the EU. That is why our currency is closer to the dollar than the euro, and why our business cycle follows New York, not Frankfurt.

There is no good reason to abandon the pound – but if we did, economic logic suggests we should join the dollar, not the euro. Euro-enthusiasts argue that the euro would bring currency stability. It would not – it would simply transfer volatility from the £/e rate to the £/$ rate. As more than half our trade and three quarters of our global investments are denominated in dollars, we would have less stability, not more.

Lord Marshall naively argues that the euro would bring lower prices. But as he should know perfectly well, there are many factors creating price differentials between the UK and other EU countries, and currency effects have a minor impact, if any.

The internet will do much more than economic and monetary union to achieve price transparency and competitiveness. As for cheaper mortgages, it is clear that the gross indebtedness and vast state pension liabilities of the euro zone mean it will have higher taxes and interest rates than other countries in the long term. Join the euro, and the British people will be indirectly funding the bankrupt state pension schemes of France and Italy.

Britain does not need the lowest interest rates, but the right interest rate. If the Bank of England believes 5% is right for the British economy, will Lord Marshall tell us why he thinks that 2.5% is better?

He says that we need the euro for inward investment. However, repeated studies of inward investors show that they come here for low taxes, low regulation and a business-friendly environment. All these factors are under immediate threat from the Continental social model with its high taxes and regulation, and the more we integrate into Europe, the more we lose Britain’s competitive advantages. Economic and monetary union membership and associated tax and regulatory changes would drive investors away, not attract them.

Lord Marshall talks about influence in Euroland. Funny how no one complains about our lack of influence in the dollar zone, even though the dollar has a bigger impact on our economy. No one agonises because Alan Greenspan doesn’t invite us to discuss monetary policy at theFederal Reserve. The truth is we have much more influence over our own prosperity if we have 100%control over our own monetary policy, rather than a one-in-15 vote on the monetary policy of Portugal.

It’s time to recognise that the economic case for the euro has not been made. It is a great political project which will have very damaging economic consequences.

Britain’s future in the internet age is as a global trading nation. We need to be fast, flexible, competitive, outward-looking – all the things the EU is not. The concept of great trading blocs is a 1970s idea whose time has come and gone. It won’t wash for the 21st century.

Roger Helmer is Conservative MEP for East Midlands