Michael White: an apology

Michael White (picture http://www.acumenimages.com)

Veteran Guardian political commentator Michael White has called for an apology from politicians who were in favour of joining the euro because of how things have turned out now.

“But the fact is they told us we’d be worse off outside the eurozone (we weren’t) and ignored plentiful warnings that you can’t easily run a currency union without much stronger political controls over member states economies, as the Germans are belatedly discovering. Plenty knew but were ignored.”

What are the facts? We said that Britain would be better off in the euro because it would enable businesses to trade in the same currency as their competitors and customers rather than imposing on them the cost of exchange rate risks, it would give consumers wider choice and lower prices, and it would give borrowers – businesses, consumers, and the government – lower interest rates in the longer term. We also said that it was not just a question of changing the banknotes, but changing our framework of economic management.

It is not fair to take the pro-European argument has having been for the same policies that have been carried out over the past decade or more but merely changing the currency. The feeling we had of prosperity was in many ways an illusion. It was paid for by a vast surge of public and private debt, the consequences of which we are discovering now.

And what did the anti-euro campaign say? We could not join the euro because we had to protect the structure of our housing market. The same housing market that has since boomed and crashed, ruining the finances and hopes and dreams of millions of families. The housing market that has absorbed a wildly excessive proportion of the nation’s capital investment to virtually no productive end whatsoever.

Also, we were told we should stay out of the euro to protect our pensions system. Our private pensions system is now in deficit to the tune of hundreds of millions of pounds, not counting the trillion pound hole in public sector pensions provision. Perhaps joining the euro would have forced us to confront the absurdity of what we were doing sooner.

And we were told we should stay out of the euro for the sake of our national sovereignty, our freedom to take our own economic decisions. That freedom is now reduced to implementing savage cuts in the public sector because the markets require it: they are “unavoidable”. Isn’t the point of sovereignty that the people make the decisions? Who voted for the bond market?

It is plain that Britain’s macroeconomic policy over the past thirteen years has been a disaster. The fiscal rules put in place – borrowing and spending should balance over the economic cycle – were changed and then broken: at the peak of the last economic cycle, Britain was running a deficit, not a surplus, which is why in the depths of recession the deficit is so big now.

In June 2003, Michael White wrote this:

“[The economy] is the sheet anchor of Labour’s political dominance and, though the shine is starting to come off the trophy as the economy falters, the credit is chiefly Brown’s.”

As we all know, credit is in short supply these days. The 2010 economy is worse than “faltering”, the causes of which were the very things that in June 2003 made the economy look so good. Michael White might reflect on to whom apologies are really owed.

On one thing, though, perhaps Michael White has a point. The pro-Europeans did not realise how weak the Stability and Growth Pact would prove to be. The threat of sanctions against member states that exceeded the deficit thresholds was never made real, and member states’ public debts carried on growing at an excessive rate. That is why Greece, in the euro, is in the same kind of mess as Britain, outside the euro. The problem with Greece is not the euro, but mistakes made by its politicians.

The criticism that may justly be made of the euro is that its governance is too weak, not that it is too strong. Pro-Europeans argue that shared governance is the right way to deal with shared problems, and the financial problem is truly shared. The government cannot claim that the problems of Greece are of no concern to Britain when, in the next breath, it tells us that the scale and speed of the public sector cuts is necessitated by the markets because of the Greek experience. Either Greece matters to us, or it doesn’t. In this instance, I am less impressed by the rhetoric than by the facts.

It is no longer the case that countries can ignore each other when making decisions about their macroeconomic policies. It is in their collective interest that they take each other’s national interests into account. The obstacle to this in Europe has been resistance within the national capitals to this logical, sensible reform. The problem is created by eurosceptics in many countries; Michael White should not blame the pro-Europeans for this.

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