Will the UK enter the Eurozone?

23rd November 2011

Unlikely as it might seem, UK entry into the euro is back on the agenda. As the single currency ploughs deeper and deeper into the clay of crisis, it is enjoying a surprise renaissance in interest – at least from some quarters.

The New Statesman reports that Lord Ashdown Paddy Ashdown makes "the counterintuitive argument that Britain would be better off if it had joined the euro. He argues that joining the single currency would have forced Britain, like Germany, to improve its economic competitiveness and maintain fiscal discipline since it would no longer have been able to devalue its currency or borrow to maintain living standards."

You can see more of his argument here in the Western Daily Press.

UK membership of the euro since inception a decade ago, is, of course, one of those unknowable historical "ifs" – especially as economics is all about the margins and a little nudge this way or that way could have made the world a different place both for the UK and for the eurozone countries.

Mindful Money reader James was eager to discuss the issue.  He added this post to a Shaun Richards blog on housing – Richards did not mention the euro at all.

"Off topic, but have you noticed that there seems to be a concerted push to talk about the UK entering the Euro. In the last week:

1. Schauble has said that we will be in it sooner than we think;

2. Heseltine has said that we will have to go in;

3. Ashdown today is writing the same thing.

It's almost as though they know that the threats (Tobin tax, slow lane etc) are going to be so awful for the UK that Euro membership is back on the cards.

Unthinkable? So is the dismissal of two sovereign European governments in a week."

As James says, Ashdown is not the only politician that most thought had retired to join in calls to join the eurozone.  Lord Heseltine, a former cabinet minister from the Thatcher era,  said this week that Britain "would be forced to abandon the pound and join the euro" and that would be "faster than people think".

Shaun didn't think it very likely.  He wrote:

"I think that much of the UK political establishment has always been in favour of the Euro and some may even actually believe in it. I have long wondered if others support for it has been based on self-interest as the EU provides plenty of jobs for politicians…

So for Hesletine and Ashdown it is easier to say we will join in the future than it looks like we were wrong! Accordingly it is part of a retreat which is likely to be forgotten if it turns out to be untrue.

As for Herr Schauble that has probably always been the German view.

At fund management group Henderson, chief economist Simon Ward reckons the idea has no chance of progressing.  He says:

 I would say the probability is vanishingly small. 

Recent events show that a monetary union without accompanying fiscal integration is unworkable. So for the UK to join: 

1.       The current (or slimmed down) Eurozone would need to become a fiscal as well as monetary union.

2.       The UK electorate would need to vote to give up fiscal as well as monetary autonomy.

Without the first point, there won't be a Eurozone to join. And the UK voting to give up fiscal as well as monetary independence iis about as likely as hell freezing over."

But – rather like the Overton Window which sets the focus on the acceptability of what is available for discussion  – the debate on the desirability of joining,  however unlikely,  has at least been re-opened after years of silence.

More on Mindful Money

Would Britain be better off out of the EU?

Is the eurozone crisis overshadowing the issue of US debt?

The Overton Window – How does a radical opinion go mainstream?

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