Tuesday 2 September 2008

The £ in your pocket?

Inevitably, a number of politicians have seized on the news that the pound has hit a new low against the Euro, largely as a result of the Chancellor's extremely gloomy assessment of the economic prospects. A government which attempted to build its whole reputation on the basis of sound economic management can hardly complain if its opponents make political hay when things go wrong.

Fluctuating exchange rates may seem a bit academic to most of us – except when it comes to buying our holiday money – but they can cause real problems for all of us. A low pound makes it easier to sell our exports, but increases the cost of our imports – which will make the fuel price crisis even more acute as winter approaches. Fluctuating exchange rates can also give massive opportunities to the speculators in the money markets to bet against one currency or another – often making the crisis worse than it needs to be.

Whilst any business involved in importing or exporting has its own view of what the exchange rate should be, most business people that I talk to want stability even more. Instability makes it hard to plan and invest for the future.

The arguments against joining the Euro were always at two levels – the economic and the political. When we last discussed this inside Plaid, it was the economics which we were debating mostly. There was clearly a belief that the Euro would succeed, and a feeling that we should be part of it; but there was also a fear that the exchange rate at the time would be relatively unfavourable to us. So, with the pound at a new low, is it time to reconsider the question?

Entering the Euro at or around current exchange rates would be a lot better for what's left of Welsh industry than it would have been at the higher level which pertained at the time that the Euro was created. And for as long as I can remember, the European interest rate regime would have been better for Wales than the regime under which we have been living, with interest rates set in London, often as a reaction to overheating in the housing market in the SE of England. For businesses trading across Europe, joining the Euro-zone would provide the benefit of stability against which they could plan their investment and strategy.

I've always felt that the real reason for the UK's reluctance over the Euro was more to do with a Little Englander mentality than with the economics. For the separatists of UKIP, 'keeping the pound' is axiomatic, but many LabourTory politicians are also afraid to support 'scrapping the pound' - either because of a fear of losing ground to the separatists, or else because, deep down, they harbour some pretty separatist views themselves.

Plaid doesn't suffer from those hang-ups. Being a full part of the European project is an essential part of our vision for Wales. To me, the damage to the government's economic reputation looks like a good opportunity to set aside blinkered British nationalism and start a sensible debate about the economic advantages of joining the Euro.


Unknown said...

I was also thinking along similar lines.
It makes sense for Britain to abandon the pound and join the Eurozone.
Could it be that Mr Darling is deliberately talking down the pound for this very reason?
I'm writing from Spain so the financial situation appears worse by the day.
In any case I assume that Wales, upon independence, would immediately adopt the Euro, as Ireland has done.

Anonymous said...

we should be thinking about the euro for other reasons to boost tourism, maximise the Convergence Funds we get etc but the Eurozone is in or heading for recession depending on who you talk to as well as the UK, but I agree a debate is always worthwhile.

John Dixon said...


I don't disagree with you that the economy of the Euro-zone is also facing difficulties. But the argument (well, the one that was used, anyway) for staying out was that the UK economy was so much stronger than the Euro-zone. That argument about the relative difference in strength no longer holds in my view - which should make this a good time to re-open the debate, if the key reason was actually as stated.

Anonymous said...

your reasons are sound John and i agree with much you say on this.

Plaid has an uphill tasking figthing against the 'dark forces' of changing minds on economic matters just look at Barnett farce but i wish you luck.