Transcript Britain and the Euro

Living in a Globalised World
Lecture 5
George Irvin & Pam Shaw
www.george.irvin.com/sussex
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Outline of This Session
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Is euro debate dead?
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Arguments against Euro
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Arguments for Euro
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Economic governance?
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Euro Debate
History:
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1997 referendum promise
2003: ‘five tests’ decision
2004: rise of UKIP
2005: French & NL referendum vote
future: unlikely that one of largest EU economies will stay
out forever
Euro launch successful but low growth in core Eurozone
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Argument on right: loss of sovereignty & identity
Argument on left: Euro-governance has ‘deflationary bias’
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Against Euro (Not Against EU)
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Cost of currency conversion too high (3% GDP?)
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One-size fits-all: i-rt set by ECB for entire region (too
high in some countries; too low in others)
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Shocks: without ER mechanism, adjustment depends
entirely on wage flexibility & mobility
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Deflationary bias: rules of SGP would force cuts in
social spending (Swedish referendum)
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Pro Euro
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Transaction cost: about 0.5% GDP incurred one-and-forall v 0.2% GDP per year gain
One-size fits all: true but largely irrelevant; UK is
currency union with regional differences as great as EU15
Devaluation: in post-war, 1966-96 pound fell from DM 11
to 2.3 but UK achieved low productivity growth.
‘Deflationary bias’: true, but so too does Treasury
‘golden rule’; Brown makes a point of meeting SGP
conditions
EU is UK’s largest trading partner (55% v USA 17%)
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Key Arguments
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Productivity gains: the full gains of a single mkt
lie in economies of scale enjoyed by v
continental economies like USA:
Full gains can only be realised with single
currency; transparency important, but removing
ER risk most important (Canadian trade study)
Risk to GBP: in long term may be squeezed
between two large currency blocks (EUR & $)
But … Eurozone needs improved governance:
‘monetary giant’ and ‘fiscal dwarfs’
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Where From Here?
Reading week:
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Catch up on reading
Consolidate notes
Think about essay topic
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Class Debate
2 Groups: Anti-euro v Pro-euro
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Use above arguments plus any
others you can think of
½ hour of debate (5 min per
speaker)
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