Martin Walker argues that the precipitous fall of the British pound, which has lost a quarter of its value since the summer and is now at historic lows against the dollar, will not, as European Commission President Jose Barroso and others have speculated, nudge the UK into the Eurozone.
There are a number of reasons for this, of which the most obvious is that the decline of the overvalued pound is a useful development for the British, making their exports cheaper and thus making their recovery more likely.
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“It didn’t take long for the eurofanatics in the Labor Party to seize on our economic difficulties for their own political ends,” [Conservative Party economic spokesman George] Osborne went on. “Our deteriorating economic performance is not a good reason to join the euro. The euro has never been primarily an economic project, it’s a political one. Once you share a currency and a central bank, the pressures for closer political union become ever more powerful. Monetary union will only increase the pressure for closer political union. That’s not what the British people want, and under a Conservative government they can be confident that it’s not what they’ll get.”
Beyond the politics — the Brits have resisted dilution of their sovereignty more than any of their EU partners over the years — the economics don’t help the case for the euro, either.
So far, the evidence suggests that the euro has neither hurt British trade nor damaged Britain’s position as the financial center of Europe. Indeed, the euro does not appear to have done much for Europe. The orthodox view that the single currency would double or even triple the trade in goods between its members has been undermined by Harvard Professor Jeffrey Frankel, who finds that trade within the eurozone grew by just 10 percent to 20 percent during the first four years of the currency, and then the growth stopped.
This stands to reason, really. While doing away with the transaction costs of multiple currencies represents a cost savings, it’s a one-time benefit. And, as Walker suggests, the UK is loathe to permanently trade away its ability to manipulate its currency to respond to crises in exchange for a short term bump in trade. Let alone, one might add, during a time of generally declining trade.
James Joyner is managing editor of the Atlantic Council. Photo by Flickr user Bashed under Creative Commons license.
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