‘Not yet’ for euro, says Brown
The UK economy is not yet ready for membership of the single currency, the Chancellor has confirmed.
Delivering his long-awaited statement to the Commons this afternoon, Gordon Brown said that key elements of the five economic tests on the viability of UK euro membership had not been met.
Mr Brown also announced a series of ‘far reaching’ reforms designed to ensure further progress in meeting the convergence and flexibility criteria set by the Government six years ago.
Until those two tests had been met, ministers could not be confident that their commitment to protect jobs, growth and stability – the fifth test – would be maintained, MPs heard.
The test on financial services has been met while it is expected that the measure on inward investment would very likely be satisfied if the UK were to enter the eurozone.
An announcement on whether a further judgment on the tests should be made will come in next year’s Budget. Draft referendum legislation will be published in the autumn.
In his thirty minute statement, Mr Brown stressed the need to effect structural reform within the European Union before it would be in the UK interest to enter the eurozone.
And he maintained that membership of a “successful single currency” would be of benefit to the United Kingdom economy, suggesting that UK national income could increase as a result of being in the euro.
“If the economics are right for Britain, we should join”, the Chancellor relayed, but insisted on the need to avoid repeating the experience of the European Exchange Rate Mechanism a decade ago.
He also claimed that it had been right not to push ahead with euro membership in 1999, arguing that a lack of convergence at that time had meant that membership would have been misguided.
However, Labour economic policy since 1997 had subsequently “contributed to meeting quite comfortably” the Maastricht criteria for convergence, the Chancellor claimed.
The operation of the housing market was key to ensuring that potential membership of the euro proved successful. Over recent decades “most stop-go problems (in the British economy)…. have been led or influenced by the housing market”, according to Mr Brown.
Dealing with such concerns, he expressed confidence that proposals to build on and extend present reforms for planning and supply would induce greater stability in the UK housing market
Mr Brown also placed faith in an ongoing review into the current British system of house financing, cited by many commentators as a notable difference between UK and continental economies.
In a wide-ranging address, the Chancellor confirmed that he was planning to introduce the use of a new international index for inflation, which he said would bring the UK into line with the practice of most of the developed world.
And he suggested that British trade could increase within the eurozone “perhaps to the extent of 50% over 30 years” should the UK join the euro.
Responding to the statement, the Shadow Chancellor Michael Howard accused Gordon Brown of dallying on the euro issue and of not taking proper heed of the economic data.
And speaking earlier in the day, he warned that joining the euro would be a ‘huge gamble’ for the British economy because of the ‘extremely destabilising’ effects the single currency would have on house prices.
Eurosceptic commentators observe that the housing market in the UK is differently structured to that of the eurozone, with a greater reliance on variable rate mortgages and in turn on the single interest rate set by the European Central Bank in Frankfurt.
But those speaking in favour of the euro claim that the economic risks of staying out of the single currency, and becoming isolated in Europe, are greater.
The importance of foreign investment for the prosperity of the UK, they argue, must not be underestimated, and warn that the large amount of investment Britain attracts is won on the basis of gaining wider access to the European market, will be threatened if the UK keeps the pound.
Meanwhile, former Chancellor of the Exchequer Ken Clarke today expressed the belief that the UK is nearly convergent with the rest of the EU.
Kenneth Clarke said that he believed the UK had nearly reached a stage at which it would be economically healthy to enter the eurozone.
He also reacted with scorn to claims that the housing market could crash if the UK entered the eurozone.
‘Obviously our housing market is different from that of western Europe, but the idea that if we join the single currency in the medium to long term something dramatic will follow where house prices are concerned is not borne out by the papers or by the reality’, Mr Clarke maintained.
