Cheerleaders from Blair to Clegg told us joining the euro was the road to riches... Now we know it would have shackled us to a sclerotic project to form an EU superstate
It is slightly surreal to read the awestruck coverage from when the euro was launched 25 years ago, on January 1, 1999.
There were quasi-religious celebrations among the 11 founding states (Greece fatefully joined two years later). When euro coins and banknotes finally launched three years later, fireworks streaked through dark winter skies. Buildings were illuminated in gold stars. Politicians made speeches heralding the dawn of a new era of peace and plenty.
Even British journalists, especially at the BBC, got in on the act.
'As the midnight hour approached, a giant inflatable tree blossomed into life,' reported Newsnight's Paul Mason from Maastricht.
'For once the Ode To Joy seemed exactly the right tune,' he added.
Supporters of monetary union had never been primarily interested in the economics of the project. The overriding goal, for them, was political, writes DANIEL HANNAN
- Lord Hannan of Kingsclere is a former Conservative MEP and serves on the UK Board of Trade.
On Radio 4's flagship Today programme, James Naughtie, covering the launch in Paris, borrowed the language of the Gospels: 'The arrival of the currency that the fathers of modern Europe dreamed about are symbols now made flesh.'
Our state broadcaster was betraying its own sympathies. Leading figures within the BBC had made little secret of their view that Britain should join the new currency at the outset, and plainly felt as if they were watching someone else's party with their noses pressed up against the windowpane.
But, in fairness, BBC journalists were accurately reporting on the mood that prevailed across the Continent.
As the then BBC Brussels correspondent, Jonathan Charles, later recalled: 'Even now I can remember the great air of excitement.
'It did seem like the start of a new era. For a few brief days, I suppose I and everyone else suspended their scepticism and all got caught up in that euphoria.'
A few years later, when the credit crunch hit, that euphoria would seem like a distant dream. Monetary union would lead to a prolonged recession, especially in the peripheral EU members — Ireland, Spain, Portugal, Italy and, above all, Greece. Unable to decouple and devalue their currency, these states had to cope with punishing levels of unemployment and emigration.
But back in 1999, all the talk was of how the new money would replace the dollar as the world's reserve currency.
Even then, a measure of self-deception could be heard in the public pronouncements. Supporters of monetary union had never been primarily interested in the economics of the project. The overriding goal, for them, was political.
Jacques Delors, the president of the European Commission from 1985 to 1995, who died last week aged 98, designed the euro as a tool to unite Europe. The father of the single currency wanted the EU to become a single country — or, at least, to adopt the attributes and trappings of a country.
Delors believed that, just as it had its own president and parliament, passport and driving licence, embassies and courts, so the EU needed its own currency. As a sign in the Commission HQ in his day put it 'Europe — votre patrie' (Europe — your country).
Hence the Eurocrats' revivalist tone. Monetary union, for them, was not about price transparency or exchange rate savings. It was about ensuring peace in Europe by jamming the constituent nations so tightly together that conflict became impossible.
They were prepared, if necessary, to pay an economic cost to secure that political goal. But they could not sell the euro in these terms.
Most Continental voters, although happy enough with EU membership, were attached to their francs and marks and guilders and schillings. They needed to be won over by promised material benefits.
So the architects of the new currency worked to convince their electorates (and perhaps themselves) that the euro was a pragmatic endeavour, a way to reduce transaction costs and facilitate trade.
Judged by economic criteria, the currency must be reckoned a failure, in no conceivable sense a success.
Since 1999, the eurozone has underperformed by almost any measure. It has seen poor economic growth, whether measured against the rest of the world, against other developed economies — such as the United States and Australia — or against those EU members that kept their currencies.
EU leaders talked of doubling or even tripling trade within the eurozone. Gordon Brown fell for it, telling MPs in 2003 that 'with the advent of the single currency and, with Britain inside the euro, British trade could increase substantially with the euro area — perhaps to the extent of 50 per cent over 30 years.'
While the benefits were massively overplayed, the downsides were ignored altogether. There were two linked arguments against the euro.
The economic argument was that members were too divergent. They did not constitute what economists call an 'optimal currency area', meaning if the exchange rate and interest rates were appropriate for one part of the eurozone, they would be wrong for other parts.
The way to resolve this problem would be automatic transfers through a pan-European tax and benefits system.
This, of course, would turn the EU into something much more like a single nation — which is what the fathers of the euro intended.
But it triggered the second argument against the euro, namely that it would involve a loss of democracy. If your interest rates, exchange rates and tax rates were set in Frankfurt and Brussels, it would make little difference how you voted in national elections. Eurosceptics, who had been voicing these concerns since the plan for monetary union was agreed at Maastricht in 1992, were vindicated when the euro faced its first challenge: the 2008 global financial crisis.
It turned out that a single interest rate had fuelled an unsustainable debt bubble in the peripheral states. These countries, unable to let their currencies sink to a realistic level, were now forced to raise taxes even as they toppled into recession.
The rules were torn up. Bailouts were unlawful — not just in the sense that they had no legal base in the EU treaties but in the sense that they were expressly prohibited under Article 125 which states: 'Member States cannot take on the debts of another Member State.' But, when the crisis hit, all that was thrown out of the window. As Christine Lagarde, then the French finance minister, put it with admirable frankness: 'We violated all the rules because we wanted to close ranks and really rescue the eurozone.' Opponents of the euro were correct in their analysis.
No one these days suggests that the Euro will become a global reserve currency.
British Europhiles warned of utter ruin if we stayed out. Tony Blair, the late leader of the LibDems Paddy Ashdown, and Mrs Thatcher's nemesis Michael Heseltine all told us that keeping the pound would ensure that we ended up poorer.
In the event, such predictions helped tip the country into voting Leave. Voters were too sensible to fall for predictions of disinvestment and high unemployment when they had heard exactly the same threats from exactly the same people, and had found them to be baseless.
British Euro-enthusiasts had argued that being in the EU should mean being in the euro.
British non-membership turned out to be beneficial to all sides. Our economy is cyclically and structurally different from that of the EU. We are heavily services-based, with smaller farming and manufacturing sectors than almost every EU state.
We trade more with non-members than with members and are on an Atlantic economic cycle. We have an unusually high level of home ownership, making us peculiarly vulnerable to changes in interest rates.
As William Hague, who was widely savaged for opposing the euro at its launch, later observed, our membership would have been like an elephant clambering into a rowing boat.
What, then, can we say about the single currency?
Economically, it has been a disappointment.
The promises that were made at the birth of the euro, promises of steady growth and job creation, turned out to be nonsense.
Yet on December 20 this year, the EU adopted new rules on what its members are allowed to spend and borrow, another step towards what Euro-enthusiasts call 'fiscal union' — and an increasingly sclerotic superstate.
At the same time, the ECB has been buying debt from the national governments in such a way as to make them more liable for each other's obligations — again, a step towards fiscal union.
Britain was able to leave the EU because it had kept the pound but other countries do not have that luxury.
https://www.dailymail.co.uk/news/article-12915341/Cheerleaders-Blair-Clegg-told-joining-euro-road-riches-know-shackled-sclerotic-project-form-EU-superstate.html
