The former French President François
Mitterand once said, "France does not know it, but we are at war
with America. Yes, a permanent war, a vital war, an economic war, a
war without death. The Americans want undivided power over the
world." Those aren't really the sentiments of a committed ally but
they do reveal a Franco-German perspective that, frankly, led to
the creation of the Euro, the single European currency.
key premise is that at the moment Britain is a natural brake on the
process of Europe emerging as a superstate. But if we are absorbed
within that superstate, then America will lose a key ally in the
battle for free trade, open markets, and transatlantic
danger is real. You may have seen that 70 percent of the British
public, in the most recent poll, are opposed to joining the Euro.
But the British government has decided in principle to join a very
high-priced and dishonest campaign to swing public opinion that has
already begun. It involves dire warnings of economic Armageddon if
Britain fails to sign up, and we expect the possibility of a
referendum on this issue in Britain in less than two years'
Business for Sterling is a non-partisan
political organization set up by some of Britain's leading
businessmen two years ago to argue the business and economic case
for remaining outside of the Euro Zone but within the European
Union (EU) and the single market. This is the geopolitical solution
that most business people and, frankly, most of the public want the
UK to arrive at over the question of Europe.
Supporters of the Euro claim the debate is
only about the money. There is an extraordinarily deceitful
argument in Britain that says that this project has no
constitutional implications at all. The government argues that they
are simply settled and the real debate is only about economics.
the project is clearly political, and that has to be understood
right from the start. As Dr. Otmar Issing, the Chief Economist of
the European Central Bank, has said, there is no example in history
of a lasting monetary union that was not linked to a state
contention is that Europe's leaders are already using the single
currency as a pretext, as the engine, for still deeper integration
and, indeed, there are now proposals for an EU constitution with
the ultimate goal of building a United States of Europe.
SHALLOW ECONOMIC CASE
But let us for the moment play the British government's
game and consider only the economic issues. What is startling about
this is how shallow the economic case for Britain's entry into the
Euro really is. The principal benefit that is being extolled for
our joining now is that we would buy exchange rate stability with
the Euro Zone. Well, that is a benefit for the 15 percent of our
GDP that is exported to the Euro Zone. The cost, though, is
Britain's acceptance of a uniform monetary policy, a single
interest rate set by the European Central Bank. If that monetary
regime is inappropriate for the British economy, that exchange rate
stability is bought at the price of instability for the economy as
a whole. Our own Chancellor of the Exchequer, Gordon Brown, has
recently made the point that exchange rate stability is not the
same as stability of the economy as a whole.
have had some currency experiments before in Britain, some recent
and some very painful indeed. A decade ago, the same evangelists
who told us that the only thing that matters in economic management
is exchange rate stability drove us into the Exchange Rate
Mechanism in Europe. Two years later we crashed out. Interest rates
had been held too high for Britain's needs. One hundred thousand
businesses--that is a lot in British terms--were bankrupted,
unemployment doubled, and one and three-quarter million homes were
thrown into negative equity.
However, since we have left the ERM we
have actually enjoyed nearly a decade of economic growth and
stability. Indeed, a former ambassador to Washington recently
suggested that a statue of George Soros should be erected in
Parliament Square to honor his role in getting us out of a system
that was causing us so much harm.
Euro does not have the advantage of an exit route. It is an
irrevocable union and it is too soon to tell whether the Euro
Zone's one-size-fits-all monetary policy really can suit all.
Already there are inflationary pressures in five out of eleven Euro
economies, but they are enjoying a long overdue period of economic
growth partly fueled by the Euro's devaluation. Times are better in
the EU at the moment. The real test of the system will come in the
future when times are bad and the danger is that Europe has created
a currency before they have created a country.
problems of unemployment start to rise in the future, there is no
system, as there is in the United States, of fiscal transfers set
in place to be able to help out those poor regions. But, more
importantly, the core Euro Zone economies suffer from high
taxation, over-regulation, inflexible labor markets, and high
endemic unemployment. Worse, they have bankrupt pension systems.
Unlike Britain, they are storing up for themselves serious trouble.
In the future, unprecedented tax rises will be necessary in order
to pay for pension systems that have not been funded. Dr. Issing
himself recently warned that this combination of problems poses an
almost lethal threat to monetary union.
Britain, on the other hand, enjoys
economic advantages that were chiefly the prize of Margaret
Thatcher's liberalizing economic reforms of the 1980s. We have
lower taxes than the Euro Zone--a fifth lower in fact. If the
pensions problem starts to unfold in the Euro Zone over the next
two decades, then that gap will rise to a third. So Britain's taxes
will be significantly lower overall than the Euro Zone's.
burdens we place on our employers are far lower. We have lower
unemployment--in fact half the rate in the Euro Zone, where
unemployment has frankly risen dismally since 1970.
the last decade we have created more jobs than the Euro Zone
economies put together. The OECD (Organization for Economic
Cooperation and Development) reports that the UK is the least
regulated of OECD economies. So the danger to Britain comes not
just from the potentially risky adoption of a one-size-fits-all
monetary policy, but fundamentally from the integration of our
economy with those whose model is entirely different from our own
and, frankly, one that is not succeeding in the modern world. EMU
means Economic and Monetary Union. This is not just about a
currency union. This is about integrating our economy with
Euro Zone's response to the challenge of creating the Euro is to
coordinate. It is not to strive for flexibility, it is to harmonize
taxes. The agenda for the next European treaty to be signed in
Nice, France, at the end of this year includes proposals to
eliminate Britain's veto on EU tax measures and the adoption of a
Charter of Fundamental Rights that would reinstate at a stroke many
of the job-destroying employment protections that Britain swept
away so successfully two decades ago.
DIFFERENCE IN PHILOSOPHY
There is a fundamental difference in philosophy between the
Anglo-Saxon economic model and the dirigiste continental model. We
call a low-tax regime a competitive business environment. They call
it unfair tax competition. We point to America's unmatched record
of job creation compared with Europe's dismal record of
unemployment. They dismiss these jobs as low-paid jobs in what they
call the "hamburger economy" and they talk about the importance of
Despite the rhetoric of liberalization,
Euro Zone countries are inclined to eliminate competition from
outside as a policy response rather than to reform internally.
While they mouth platitudes about the new economy, too many of
Europe's leaders long for Wall Street and the Nasdaq to crash to
show that Anglo-Saxon "casino economics" really is a failure.
the danger is that as the Euro Zone countries find it impossible to
compete in the global economy they will resort to protectionism.
Already trade struggles with the U.S. over bananas and
hormone-treated beef illustrate that U.S.-EU tensions are rising.
Britain has the most to lose from an isolated, from a fortress
Europe. The U.S. invests twice as much in Britain as the Euro Zone
does and Britain is the single biggest foreign investor in the
we join the Euro, our ability to influence European trade and
foreign policy must wane. That influence depends on the leverage
that comes from Britain's role as a transatlantic bridge, our
relatively superior armed forces, our unique global alliances. It
does not come--will not come--from the defeatist attitude of some
in Britain who cannot distinguish between consensus and
IMPLICATIONS FOR AMERICA AND
The old Cold War-era policy position that American interests have
been furthered by ever deeper Anglo-European integration no longer
holds. America now faces the emergence of a European government
which does not share the Anglo-American desire for a liberal global
trading order, and which is developing a military capability that
it hopes will position it to rival America.
America relies on British support whenever
it argues in favor of liberalizing global markets. The U.S. and
Britain ought to be promoting a global free trade area, not
consolidating rival blocs. It is in America's interests surely for
Britain to be arguing for radical reform from within the EU but
outside of the Euro Zone.
single currency was conceived in the last century in an age of high
tariff barriers that predate the personal computer. Today the
Internet revolution has left the Euro behind, superseding many of
its claimed benefits such as delivering price transparency and
lower transactions costs. It has opened up a world to a new
generation of businesses and consumers who buy, sell, and
communicate globally. In the new economy we have to decide whether
it is more important for Britain to be investing in e-commerce or
tills for new coins and bank notes. We have to decide whether we
want a modern global perspective or a narrow European one.
investors in Britain are being told that they should back Euro
membership because it will bring exchange rate stability with the
Euro Zone. They are not being told that the Euro could destabilize
what has been a stable relationship with the dollar. The Euro, as
you know, has plunged some 20 percent against the dollar since its
were told when the Euro was launched that we should join it because
it would be a strong currency to rival the dollar. Now Britons are
being told that we have to join the Euro because it is weak.
are they being warned about the price of economic union in terms of
high taxes, rising employment costs, and more regulation. It is
time, we argue, that investors were shown the other side of the
coin. It is time they were reminded about Britain's economic
advantages, advantages we feel will be lost if we lose our currency
and lose our economic control.
Britain has now the lowest inflation in
the EU. In fact, we have the lowest inflation and unemployment for
two decades. We have enjoyed an economic renaissance. We have taken
measures that were hard-fought and which were painful in the 1980s,
and our fear is that they are now going to be rolled back.
actually receive more inward investment in Britain than Germany and
France received combined--the lion's share of the EU's inward
investment. In spite of these concrete facts, predictions of gloom
if we remain excluded from the Euro Zone have been rising.
Over the past two decades Britain's real income per head has
actually grown faster than Germany's and France's, and even faster
than the United States'. As I mentioned, we have secure and funded
pensions. We actually have more invested in private pensions than
in Germany and France put together.
therefore have a bright future. But that is a future that we feel
is at risk and the Euro is the Rubicon issue. Cross it and we have
sold out. We have lost many advantages after fighting so hard to
regain our economic success for this new century.
can't have a special relationship with America if we are willing to
cede control of our economy, our defenses, and our foreign policy.
We can't be a bridge between North America and Europe if we are
subsumed within Europe itself. Britons have so far only heard the
Continent's siren voices warning against isolation from Europe.
They need to be reminded that their relationship with America
matters, too, and America needs to realize that the transatlantic
bridge is now in danger of being broken.
Nick Herbert is Chief Executive of Business for
Sterling, Britain's leading campaign against joining the Euro Zone.
It is supported by some 300 business leaders across