I’ve read with interest the posts over the last few days advocating UK membership of the eurozone.
Although as some of you may be aware, up to about a couple of years ago I too would have supported the idea of joining the eurozone for the reasons already mentioned in some of the posts. It has taken a world recession on a scale that no one could have imagined to alter my view. The euro in my opinion was always a leap of political rather than economic faith. On reflection members of eurozone placed too much emphasis on the positive aspects of a common currency rather than taking into consideration the uncomfortable negatives flowing from their fiscal independence and differences in their economic profiles and cycles. During a long spell of bouyant world trade the euro did indeed appear to be a strong currency and in one of his posts Chris appears to take the view that a strong euro is something to be admired. This is not neccessarily the case. A strong euro may be the result of high interest rates or strong economic growth. If it is the latter it doesn’t neccessarily mean that the economic growth is evenly spread across member states. A stronger euro would be welcomed by Germany, which already has a very competitive economic base. However, the last thing that Greeceand Spain need at the moment is a strong euro. This reveals some of the fault lines within the common currency trading area.
Unless there is a fundemental shift in culture, investment, law, training, economic and commercial practices, Spain and Greece will increasingly be left behind in the economic stakes and membership of the euro will increasingly be seen as a straight jacket. They are now having to take unpalatable decisions, forced upon them not only by the markets but also more vigorously by other eurozone members, which are deeply unpopular within their societies. When people begin to associate the austerity measures with eurozone membership there may be a backlash. Certainly there would be in this country.
Fortunately in our case we have been able to use a wide range of measures to tackle the economic problems, which are not available to Greece and Spain. The most notable one being able to devalue our currency inorder to regain competitiveness. It is interesting to note the comments regarding the high prices of products in Spain. Bearing in mind the importance of tourism in the country, particularly in some of the Regons, they are in danger of losing market share to other countries whose cost of living is far less.
Whilst I agree that the UK may be vulnerable to negative currency fluctuations, in a way in which a powerful trading block is not, at this point in time it seems a price worth paying. However, like most things time will tell whether the UK’s decision to remain outside the eurozone was a good decision or not.
Having said all of that I must confess that if I was living in Spain on a UK pension I would be strongly advocating eurozone membership purely for selfish reasons. 🙂 🙂