A Euro Strategy
by Paul Hazelden


      The question about whether the UK should join the Euro is, of course, both economic and political. Both aspects of the question have been stuck for several years, and there seems little prospect of any real movement while the question itself remains unchanged.

      We should not join the Euro if the economic cost is unacceptably high, but nobody I know believes that the 'five tests' can objectively determine whether it is in the UK's economic interest to join. The economic tests are important, but, in the end, they boil down to a question of political judgement.

      The political issues surrounding the Euro are so loudly and violently expressed, and the principles involved ('freedom' and 'identity' for example) that there seems little chance of a real political debate taking place at all, whatever the Government chooses to do.

      The only rational option at this point seems to be to change the question. While we are stuck with the black/white, join/don't join, love Europe/hate Europe dichotomy, neither side is going to move significantly. So perhaps it is time to explore a third way?

      If the Euro was made a legal currency within the UK, a great many things would change. This would not the be Government forcing the Euro on a resentful nation, but the Government giving individuals and businesses the freedom to make the currency decisions that make sense to them.

      In concrete terms, what would change?

      • Individuals and businesses could submit their tax return either in Sterling or in Euros
      • Businesses could bill for their services in either Sterling or in Euros
      • Shops could sell their products for either Sterling or Euros, or (as many would do, especially in tourist areas) accept both.
      • But none of them have to make any change at all.

      The main groups affected by this change would be the banks and Government agencies. The banks would welcome it, as it will encourage people to hold more accounts - Euro as well as Sterling - so they will make more money. The Government agencies will need to make some minor changes to accept the Euro equivalent of the current Sterling charges. But the extent of these changes can largely be driven by public demand. Once the framework is in place, the Government does not need to legislate on the details.

      A business can choose only to deal in Sterling. If enough of its clients want to deal in Euros, they can make the decision to operate in both currencies when it is in their interests to do so. It becomes essentially a payment option (like whether they accept credit cards), rather than a political statement.

      Operating in two currencies used to be costly. But these days, almost every business uses an accounting package, and if the computer is doing the work then running two currencies is almost trivial.

      The UK could decide to implement this change and commit itself to not 'joining' the Euro for ten years. After ten years, what would have happened?

      It might be the case that 95% of all our internal business is still done in Sterling. Many tourists would find it a bit easier to spend their money in the UK, but nothing significant would have changed. We would not have lost our sovereignty, our identity, or our warm beer.

      It might be the case that 95% of our internal business will have migrated across to using the Euro. In which case, 95% of our economy will already be 'in' the Euro Zone, our economic cycles will be in step with Europe, and the political and economic arguments for officially joining will be much stronger. The fear of joining will have been neutralised through long familiarity.

      Of course, it is possible that around 50% of our internal business will use the Euro, and there is still a real debate about whether it is in our interests to join the Euro. But at least the debate will be able to take place without much of the fear that both sides currently experience: joining will not be such a step into the unknown, and not joining will not leave us permanently excluded (other than at the political level, and who is to say that this might not be to our benefit in the long run?) - and nobody will be able to credibly suggest that one course of action or another will instantly lead to disaster and economic collapse.

      Paul Hazelden, 10 June 2003.
       

      Postscript, September 2003

      My friend Rosemary points out that many shops in the UK already accept both Sterling and Euros. This is true, but the number seems to be very low. We don't make it easy for such shops to operate.

      However, this reminds me of a point I had intended to make: for ordinary business to operate with both currencies, they would have to be able to convert between currencies at no (or very little) cost. I imagine it is possible for them to provide the service for free when dealing with money electronically, and if they can't be persuaded to do the same for hard currency, then a ceiling of 10p per transaction or 0.25% of the transaction value should be workable.

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