By: PHILIP BUSHILL-MATTHEWS
Philip Bushill-Matthews is a Member of the European Parliament and is the Employment and Social Affairs Coordinator for the European People’s Party/European Democrats.
ON JANUARY 1, Cyprus and Malta dumped their national currencies to join the Eurozone, making now 15 countries altogether. Slovakia is expected to sign up in 2009, while other EU Member States will follow once their economies are ready.
Even Denmark, who some years ago had a national campaign to Save the Krone, is now re-considering. The Krone is officially pegged to the Euro anyway and many Danes now believe there is little point in staying out any longer.
The single currency has certainly come a long way since it was introduced just six years ago.
When it was first launched, the Euro immediately sank against most major currencies.
But now the Euro has not just regained its launch level but has risen to a record high against the Pound.
The other way of describing this is that the Pound has dropped to a record low against the Euro.
But the Euro cannot take the credit. Many member countries have lowered taxes and reduced over-rigid labour market legislation.
These changes have strengthened their national economies and strengthened their currency in the process.
In the UK, taxes and red tape have gone upwards instead, which is why we are steadily slipping down the international competitiveness league.
However, a Single Currency is by definition Single, which means one size fits all.
Not only must it fit France and Germany as the major continental economies, but also now Cyprus and Malta.
The combined economies of these two islands account for only a quarter of one per cent of the total Eurozone economy – yet each is entitled to have its own Governor of the European Central Bank (ECB) to sit alongside 13 others with an equal say on all decisions including interest rates.
The countries who are most concerned are Italy and France.
Italy’s economy seems at times founded on fresh air. It is questionable whether it was ever robust enough to have joined the Euro in the first place.
Meanwhile, President Sarkozy is worried that France is too costly and bureaucratic to compete internationally and wants to change the ECB terms of reference away from just managing inflation to managing the level of the currency, i.e. allowing politicians to devalue.
This is unlikely to happen.
Meanwhile the UK’s strength should be that we only have one Governor of the Bank of England – yet ours is the only country to have suffered a recent run on a bank.
So the moral of this story is: you do not have to join the Euro to succeed.
However, you do have to manage your economy properly.
With the UK currently running the largest budget deficit in Western Europe and with record levels of personal debt, the Pound looks to be set for a further pounding.
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