Real Politics

We are all feeling the pinch of the global recession. America is affected. Britain is affected. The whole of Europe is affected. The issue for us, however, is that we belong to the European Union and are one of the few select countries to not use the euro as our currency. This, while in itself not an issue, has become one since there are murmurings about how we would have not been as badly affected if we had adopted the euro, and now some are even advocating we adopt the euro in this time of financial crisis.

Now, while I agree the recession is bad, and it’s affecting us all in multiple ways, and I agree we need radical measures, I do think swapping the pound for the euro would be a bad move now. Indeed, we must not forget why we actually rejected the euro in the first place.

Britain, due to retaining control of the pound, is in a unique position within the EU in that the Bank of England sets interest rates, and not the European Central Bank. The ECB decides interest rates based on the whole of the euro area, and tries to find a compromise which benefits no country yet isn’t a detriment to any either. In addition, Britain is unique with its housing market such that any ECB determined rate would indeed be to the detriment of our economy. Indeed, the ECB is trying to find a one-size-fits-all interest rate, which unfortunately simply doesn’t exist.

If Britain were to adopt the euro, we would lose control of our interest rates. Indeed, we would lose all and any overview in monetary policy.

Additionally, Britain initially rejected the idea of the euro due to the lack of clarity as to whether or not it was good for business. While being good for tourists and ‘easy’, and this ‘ease of use’ also applies to businesses, it at the time wasn’t clear how valuable it would be to the UK due to the more international role of trade.

Indeed, looking again today, the euro isn’t any better for business than the retaining of the pound would be. If anything, retaining the pound means better trade with important partners: the US, Canada, and Australia.

It’s easy to say that having the euro would make us more adaptive to the financial recession. The reality is that this isn’t the case. It would, if anything, make us worse off in this regard. In addition, with all the reasons for us initially rejecting the euro remaining, there is no reason why we should open up this old can of worms – it is imperative we keep the pound.