Debate on Britain and the euro gathers momentum

It is encouraging to see that the debate on whether Britain should join the euro is gathering pace. E4U launched this book with contributions from Will Hutton, former member of the Monetary Policy Committee, Willem Buiter, and BP Chairman Peter Sutherland and website last week. Let’s hope it continues to gather momentum on this important issue.

Clarke's return will re-open Tory wounds on Europe

The Conservatives’ apparent retreat from rabid euroscepticism has apparently continued today with Ken Clarke returning to the Tory shadow cabinet. Meanwhile, in a sign of the added importance the Tories are attaching to Europe, their shadow Europe spokesman Mark Francois has also been promoted to the shadow cabinet.

Clarke’s return to the front bench has been hotly debated by Conservative activists on Conservative Home, with many members dismayed that such an unabashed europhile is back. Among the choicest quotes are descriptions of Clarke as “divisive” and “overrated” while one describes the move as “two fingers to anyone in the Conservative party who is a eurosceptic". The Conservative affiliated Bruges group has also claimed that Clarke’s promotion signals David Cameron’s abandonment of a commitment to a referendum on the Lisbon Treaty.

The idea that Clarke will be silenced on Europe is surely fanciful, especially as shadow Business Secretary when most of of Britain’s trade is with its EU neighbours. Although Clarke has promised not to buck the party’s policy on Europe, he has consistently called for Britain to join the euro, is against Tory withdrawal from the centre-right EPP, and was one of just three Conservative MPs to vote in favour of the Lisbon Treaty back in March last year. He is also forthright in front of a microphone and it is surely only a matter of time before he criticises party policy. As Gordon Brown put it this morning, “it’s good to have someone in the Shadow Cabinet who is supportive of our policies on Europe, on VAT and probably quietly supportive of a number of our other policies”.

While most Tory MEPs will be happy to see him back, the likes of Roger Helmer and Dan Hannan, and the majority of Tory party activists will be spitting feathers. If Ken can’t keep quiet, Tory infighting over Europe will continue unabated.

Weaker pound can help Yorkshire & Humber’s economy

The soaring value of the euro (and corresponding drop in the exchange rate of the pound) has been given extensive coverage in the media but it is not entirely bad news.

Because the EU budget is calculated in euros it means that the value in pounds of the EU regional funding we receive has suddenly risen dramatically. In 2009, Britain is set to receive around €3 billion in structural funds, worth approximately £2.2 billion this time last year. With the pound having lost around 25% against the euro since then, the amount, at the present exchange rate, would be around £2.85 billion - an extra windfall of over £600 million.

Yorkshire & Humber receives a significant amount of this, and should consequently be a beneficiary of this extra European money. What is imperative now, is that the government, our region’s development agency (Yorkshire Forward) and businesses make sure they make the most of this windfall by spending it on job-creating investments, training programmes and regeneration projects.

Another benefit in the rise of the euro is that its higher value means that there is a corresponding increase in the purchasing power of our main export market. This increases export opportunities for local firms to the eurozone. Again, Yorkshire & Humber is particularly well placed to take advantage of this, with the Humber ports our export highway to the continent.

Is Iceland going to become the next country to join the EU?

Well, stranger things have happened. Iceland's Prime Minister, Geir Haarde has announced the creation of a commission to analyse whether Iceland should join the EU, while the Icelandic Foreign Ministry has drafted an action plan that would see the country make a membership application early next year with a view to becoming a full member in 2011. Given that Iceland already implements EU single market legislation in order to have access to the common market, it should not take them long to adopt the rest of the EU acquis communautaire.
 
In a further sign of the government's determination to proceed quickly, Haarde has announced that his ruling Independence Party will hold its 2009 conference in January instead of next October as scheduled, purely to consider the question of EU membership.
 
Iceland has never before applied for EU membership, but the price of isolation has been brought home to them following the collapse of its banking sector and a massive run on its currency, the Króna. This has convinced many in Iceland that the country needs to join the euro. For this to happen, Iceland must be a member of the EU. Indeed, recent opinion polls show that 70% of Icelanders are in favour of EU membership.
 
All of which must have eurosceptics, and particularly Dan Hannan, (who frequently argue that Britain's relationship with the EU should be akin to that of Iceland), weeping into their drinks. It's been a bad few weeks for their arguments.

Have the Tories become pro-European again?

What an unthinkable thought just a short while ago, but after the events this week I'm not so sure.

Today the Tory MEPs selected as Leader, Deputy Leader and Chief Whip, three MEPs who are all opposed to David Cameron's pledge to withdraw the Tory MEPs from the centre-right EPP - and all with, as I understand, large majorities.

Indeed, while they elected fellow Yorkshire MEP Timothy Kirkhope as their leader in Europe, defeating James Elles, just as significant were the other results from their internal elections: the moderate Richard Ashworth defeated the eurosceptic Geoffrey Van Orden. Furthermore, Sir Robert Atkins, who penned this diatribe warning Cameron against allying the Conservatives with the Polish Law and Justice party and other extreme right parties in Europe, was appointed as Chief Whip. In other words, a clean sweep for the moderates.

Kirkhope has, of course, been leader of the Tory delegation before (between 2004 and 2007 before being ousted by Giles Chichester). He is also the author of this "Alternative Treaty", which contains virtually all the substantive reforms contained in the Lisbon Treaty which the Conservative leadership in London so bitterly opposed.

Needless to say, this news is a clear statement to Cameron that, to keep to his EPP withdrawal pledge, he will have to fight his MEPs to the death, and has met with a mixed reaction amongst the grass-roots activists on the influential Conservative Home site. One would expect that the notorious H-block of Chris Heaton-Harris, Roger Helmer and Dan Hannan must be spitting feathers, but perhaps not - even Helmer seems to have performed a volte face on Europe this week, calling for EU legislation (on horses) to be more strictly enforced in member States!

All of which comes hot on the heels of Conservative MEP Christopher Beazley's speech yesterday in the Parliament, in which he declared that Britain should have been "a founder member" of the euro, and adding that he looks "forward to the next Conservative Government applying to join the eurozone really quite shortly."

Just two days into a Strasbourg session one has to ask what more is set to follow. Maybe tomorrow the Tories will call for Britain to sign up to the Schengen agreement?!

Still, the bottom line from both of these stories is that, certainly as far as his MEPs are concerned, whatever edicts David Cameron tries to enforce from Smith Square, he is a leader who is not being followed.

Will Hutton on the euro

Will Hutton has written an interesting piece in yesterday's Observer on why Britain's best interests may be served by us joining the euro. Click here

Dan Hannan on Iceland

Sadly the financial crisis continues to hit Iceland hard as it battles to keep its head above the water, seeing its currency collapse and desperately seeking foreign loans, while West Ham's owner Bjorgofur Gudmundsson is, according to the Daily Telegraph, facing the collapse of his Samson Holdings company, having already lost £230million.

Meanwhile, several prominent Icelanders, including possibly Iceland's most famous national, Bjork, has called for the country to join the safe haven of the EU and the euro, the idea of which will appall Tory MEP Dan Hannan.

A long time fan of Iceland, Hannan spent his stag night there so he could enjoy himself outside the EU (though obviously not outside most EU regulations, which Iceland follows as a member of the EEA, though with no say in shaping them).

And well done to the Fabian's Next Left blog which has dug up an astonishing article Hannan wrote for the Spectator in 2004.

In it he writes: "Being outside the EU, Iceland has been able to cut taxes and regulation, and to open up its economy. For 70 years the Althing has been dominated by the splendidly named Independence party, which has pursued the kind of Thatcherite agenda that is off limits to EU members...

"They understand that there is a connection between living in an independent state and living independently from the state. They have no more desire to submit to international than to national regulation. That attitude has made them the happiest, freest and wealthiest people on earth. Long may they remain so."

Quite spectacularly wide of the mark!

Brown gets Europe pulling together

Few people would begrudge Gordon Brown a peak at the world’s newspaper headlines after Le Monde hailed him a “European superhero” and the Washington Post declared him the saviour of the world financial system.

By boldly rescuing threatened banks by part-nationalising them, providing guarantees for inter-bank lending and injecting extra liquidity, Gordon produced a plan that was rapidly followed by the eurozone countries (whose meeting he was invited to, despite not yet being a member), and then by others around the world.

This has at least stemmed the current tsunami of financial sector troubles, but it is the combined action with other EU governments which promises to produce a long-term plan which can avert a reoccurence of the reckless gambling that left so many banks on the brink of collapse.

In today’s press conference with Jose Manuel Barroso, ahead of the EU summit, Gordon made clear that coordination and cooperation among EU governments and regulators is now imperitive. An early warning system and better regulation of transnational banks and companies are also set to be introduced. (It is also reassuring to see Barroso confirm that despite the current economic climate EU countries would maintain their ambitious plans to combat climate change by reducing carbon emissions.)

Of course there is much still to do, with the rise in unemployment a warning there are still difficult times ahead but, thanks in no small part to Gordon Brown, there is at least now a concerted effort to get EU governments pulling in the same direction.

More on the current financial crisis

Further to my comments yesterday, there is another European dimension to the financial crisis.

Imagine that, instead of the euro, we still had the peseta, the lira, the Irish punt, French francs, etc. It is highly likely that they would have responded differently on exchange markets, and some might have been subject to speculative attack. Currency market turmoil would have added to the instability, aggravating the crisis. Instead, the bulk of Europe's common market was able to rely on a stable and strong currency to help weather the storm.

This point was made in connection with other crises too, by Stewart Fleming the former bureau chief at the Financial Times in the European Voice last week.

He wrote:

"So far, in the face of the worst global financial crisis since the 1930s, the euro is once again proving its worth as a bulwark of stability. In 1997 and 1998, during the Asian and Russian debt crises, in the run-up to the launch of the euro, the single currency helped to insulate 'old' Europe from global contagion. When the bursting of the dot-com bubble triggered a transatlantic slowdown in 2001-02, the single currency again helped the eurozone ride out the worst of the storm. Now, in the wake of the US' subprime crisis, the eurozone is (once again) coping with the turbulence far better that would have been the case if the nation states of the eurozone had still been clinging to their national currencies, which is testimony to the extraordinary credibility that the single currency and its guardians in Frankfurt have amassed."

Will Hutton, writing in today's Guardian, goes further and believes that joining the euro is the only way Britain can secure the future of its banks and economy.

The Express plugs the Euro! Shurely shome mishtake!

I had a welcome surprise on Friday, when reading the Express (of all papers!) making a case for Britain to join the euro! While the new vastly reduced roaming tariffs will make it much cheaper for people to call and receive calls from abroad, the pound's weakness against the euro means that the maximum fee for UK mobile users will actually go up in terms of pounds. This is another, albeit smallscale, example of how Britain's status outside the eurozone leaves it vulnerable to currency fluctuations.

However, I fear that the Express was not intentionally intending to plug British membership of the single currency.

Time to reopen the euro debate

Ten years ago when 11 European countries agreed to freeze their exchange rates in preparation for a single currency, a number of sceptical economic correspondents predicted financial calamity. Then, when the euro was going through a difficult teething process, they were quick to deride it as a 'toilet currency'. That within ten years of its creation, the same economists are now anticipating that the euro will overtake the US dollar as the world's principle reserve currency, demonstrates the economic strength and stability created by the euro.

So, when will Britain (Europe's second largest economy) become a member? This question has, quite simply, dropped off the political radar in recent years, but EMU's 10th anniversary is surely no better a time to re-open the argument and question whether by staying out Britain is missing out. It is difficult to accurately estimate the damage to inward investment and job losses caused by our non-entry. However, companies ranging from US construction giants Caterpillar to car companies Toyota and Nissan have made it clear they will not increase or even maintain their investment in the UK while we intend to stay outside the single currency.

Steady inflation rates of a fraction over 2%, the lowest interest rates in a generation, the creation of 16 million new jobs in the eurozone, increase intra-area trade and a deeper, more integrated financial market are just some of the achievements that serve as a testament to the euro's success. The euro's transformation is no better illustrated than by the observation that, whereas in 2001 it accounted for 27% of the global financial pie, compared with 51% for the dollar, it now accounts for 45% of the global market compared to the dollar's 37%.

The next step for the single currency will be for world commodity prices to be fixed in euros rather than dollars, a development that would also strengthen the arguments for UK membership. At present, manufacturers in Britain and, indeed, the eurozone are hostages to fluctuations in the US economy that have nothing to do with our suppliers or our own economy. Having world commodity prices fixed in euros would transfer the US's current economic advantage to Europe.

That being said, European monetary union remains unfinished business in more ways than one, and it would be disingenuous to claim that monetary union has been a painless process. Several countries sweated under the initial strain of having interest rates set jointly through the European Central Bank. Moreover, with currency devaluation no longer a quick fix for their finance ministries, Spain and Italy (and no doubt others in the future) have to face up more quickly to structural adjustments to maintain the competitiveness of their respective economies.

But the case for monetary union is still strong. Indeed, as ex-German Chancellor Helmut Schmidt put it, "who ever heard of a single market with 11 currencies", an argument that is pertinent now as it was back in the 1980s when he made it. With that in mind, lets re-open the argument in Britain.

Meetings in Malta

Am in Malta for a meeting of European Socialist parties. This month, Malta adopted the euro as its national currency, which most seem pleased about, apart from the currency exchange kiosks who will have far fewer opportunities to rip people off with extortionate exchange rates. (Good pub quiz quetion: which two Commonwealth countries joined the euro this year?)

Also interesting to see The Sunday Times of Malta, the entire front page of which is devoted to EU issues, not least the question of what action the EU might take to require Malta to cease the practice of indiscriminate and massive shooting of migrating birds as they fly over Malta from Europe to/from Africa. There is not much point in agreeing a Europe-wide system of protecting migratory birds (as we have in the EU birds directive) if one crucially-located member state does not respect it.

Also interesting was an article about Malta's MEPs being more well known and more popular than its MPs, and the European Parliament enjoying higher trust levels in opinion polls than the national parliament. I must remember to tell some of my Westminster colleagues!

Godfrey and his fistful of euros

Following this week’s part session I dashed back to Yorkshire to go head to head with my favourite curmudgeonly UKIPer Godfrey Bloom, in a debate at the University of York on Britain’s place in the EU.

Godfrey imparted his usual mix of myths, allegations and outrageous statements to the audience, culminating with him calling for an end to all aid to Africa because it was holding the continent back.

So no real surprises until Godfrey led the charge to the bar for the post-debate drinks. Kindly offering to get a round in, Godfrey dipped into his pockets but found, to his consternation, that he only had euros! "No Problem" said the students -we accept euros here..

Although the issue of whether Britain should join the euro remains on the margins of political debate, as far as companies looking to invest in the UK, the question refuses to go away, as demonstrated by this recent article in the Financial Times.

Britain's consistent economic growth during the past years has pushed the euro off the political agenda. However, if investment decisions by major companies start to go against the UK because of Britain's status outside the eurozone, a re-think may be in order.

Just to give some examples of the feelings of the business community, Hans Haefeli, Vice President of US construction company Caterpillar, which employs 11,000 Britons, has stated that "fundamentally it would make life easier for us if Britain were in the euro" while Andreas Ludwig, head of Austrian company Zumtobel which employs 650 people in County Durham, commented that "not being in the euro means we are exposed to currency fluctuations and that is a problem".

Moreover, Toyota, the world's largest car manufacturer, is expected to decide within the next year whether to make a big investment in its UK plant in Derby or to increase its resources in other sites in Europe. This decision will be a good litmus test of whether by staying out of the euro the British economy is being hamstrung.

Last month the European Parliament approved the applications of Malta and Cyprus to join the euro. The steadily growing number of countries adopting the single currency makes Britain’s position outside the euro look increasingly conspicuous.

A series of multinationals, including Ford, Toyota, Honda and Unilever have all expressed concern about the effect of Britain's non-entry on their ability to invest and maintain their manufacturing bases in Britain. Indeed, a month ago the chief executive of Honda, Takeo Fukai, told the Financial Times that for Honda, Britain's apparent reluctance to join the euro meant that the company had "no plans to expand". However, in the same breath he added that "we may change our minds if Britain were to join". Meanwhile, Honda's rival Nissan has often said that Britain staying out of the euro threatens jobs at its Sunderland plant.

Companies with UK bases that sell good to the EU have to bear hedging and conversion costs of currency that our German, French, Dutch, Irish etc. competitors don't, leaving the latter with a clear advantage.

Moreover, the euro is rapidly establishing itself as the world’s strongest currency and has now displaced the US dollar as the main denomination for world trade, accounting for 45% of the global market compared to 37% for the dollar. Indeed, it is likely that world commodity prices will soon be denominated in euros rather than dollars. It is becoming increasingly clear that for the UK, staying out of the euro means being economically hamstrung.

It is curious to see Tony Blair lambasted in Conservative and UKIP circles for having "sold out to Europe". In much of the rest of Europe he is considered to have done precisely the opposite!

To read the Belgian or Italian press, for instance, you would have thought that Blair had single-handedly prevented the rest of Europe from carrying out the modest reforms it sought to the current EU system - or where he was unable to do so to negotiate instead an opt-out for Britain. Blair is, along with the Dutch, blamed for killing off the notion of an EU constitution. He blocked certain changes from unanimity to qualified majority voting. He has an opt-out of the Charter of Rights and kept Britain out of the euro and Schengen. He even opposed a reference in the treaty to the long standing primacy of EU law. I could go on - and many of the criticisms are unjustified. But they do illustrate how the Eurosceptic attacks on Blair in Britain are, to put it mildly, somewhat one-sided in their analysis.

I came across this excellent article by Ivan Massow this morning. In it Mr Massow describes his conversion on the single currency and calls for the party of which he is a member, the Conservatives, to reconsider their hostility to the euro.

In it he rightly points out that the euro has become the predominant and most stable currency in the world, while the French have not become less French, nor the Spanish less Spanish for having adopted it.

He also explains the economic sense of consumers not having to change money when they travel, commenting that if only half of us visited mainland Europe once a year at an average exchange commission of three percent, this amounts to conversion costs of £5.4billion.

Moreover, the beneficial impact of the single currency on British business must be emphasised. Massow, who is a millionaire businessman himself, asserts "I cannot think of a business that would not benefit if exchange commissions and fluctuating currencies disappeared", pointing out that the euro has rapidly surpassed the dollar in becoming the world's number one choice.

Let us be quite clear that in the case of the UK and the single currency, staying out means missing out.

The news that the euro has displaced the US dollar as the world's principle currency accounting for 45% of the global market compared with 37% for the dollar, offers yet another illustration of the potential economic gains of British membership of the single currency.

As Europe's share of world trade is greater than that of the US, it was always likely that the euro would replace the dollar as the main denomination for world trade. Nonetheless, when you consider that, as recently as 2002, the euro represented 27% of the global financial pie, compared with 51% for the dollar, it is clear that, after some initial teething problems, the euro is rapidly establishing itself as the world's strongest currency. Certainly, it conclusively rubbishes the notion put about by eurosceptics in the UK that the euro was a 'toilet currency'.

The creation of the single currency in 1999 has enabled the development of a deeper and more liquid financial market, consolidated by a strong, growing eurozone. As Rene Karsenti, President of the Internal Capital Market Association, puts it: "it is the stable interest rates in Europe that have helped and the fact that the euro has strengthened and shown resilience".

From the perspective of the UK, this news again demonstrates why, in the UK's case, staying out means missing out. Firstly, UK companies within the EU have to bear hedging and conversion costs of currency that our German, French, Dutch, Irish etc. competitors don't, leaving the latter with a clear advantage.

The next step for the single currency will be for world commodity prices to be fixed in euros rather than dollars. At present, many of our production costs rise and fall with the value of the dollar. Because of this, British manufacturers are hostages to fluctuations in the American economy that have nothing to do with our suppliers nor our own economy. This advantage that the Americans currently enjoy, of having world commodity prices fixed in their own currency, will be transferred to Europe. It would be nice if the UK were able to take advantage of this.

Apparently, seven out of ten people believe that the pound will be axed if Britain ratifies the new EU constitution - according to The Sun yesterday.

Yet there’s absolutely nothing in the treaty that says this. In fact, it says exactly the opposite – the UK will never have to join the euro unless it wants to.

So what does this so-called ‘news story’ tell us? Simply that people are confused about what’s in the treaty. Wouldn’t it be more useful for The Sun to cut through the confusion and report the facts – rather than muddying the waters further?