Former Bank of England director warns against euro
A former director of the Bank of England and leading business figure warned today against Britain joining the euro, saying the single currency was “punishing” countries within the euro-zone.
Martin Jacomb, ex-chairman of Prudential and current chairman of manufacturing company Delta Plc, told a committee of MPs that the euro was “flawed” because countries with differing economies like Germany and Portugal could never entirely converge.
However Mike Rake, international chairman of accountancy firm KPMG and a member of the pro-euro lobby group Britain in Europe, told the British treasury select committee that Britain was losing out by not being in the euro, which was boosting trade in the euro-zone.
MPs on the treasury committee are conducting an inquiry into the UK and the euro ahead of the outcome of the Government’s assessment of the five economic tests, expected this summer.
One of the five tests is whether Britain can achieve sustainable convergence with the euro-zone economies.
Jacomb, a director of the Bank of England between 1986 to 1995, told the committee: “If you have a number of economies which aren’t converging ... you will either impose too high an interest rate on a successful economy like Germany or too low an interest rate on those prone to inflation like Portugal, or both.
“Unless there is a central Government capability of redistributing tax from successful countries to less successful countries ...in the single currency zone, it is a certainty that the successful parts of the euro-zone which have too high an interest rate ... will tend to suffer from deflation, and the less successful parts of the euro-zone will continue to suffer from inflation.”
This would lead to falling employment and diminishing economic activity, Jacomb said.
“I didn’t expect these tendencies to emerge in such a way as to cause damage for quite a few years. I thought they were long term trends but in fact they have emerged over the three years.
“The euro is punishing Germany. It is punishing countries like Portugal.”
Jacomb said entrepreneurial people were leaving the less successful countries for the more prosperous parts of the euro-zone, which was making convergence less likely.
He added: “That is precisely what happened in Italy in 1870 when the lira was enforced as a single currency and Italy was unified by force.
“The south of Italy was not converged with the north, and people went to the north, which further impoverished southern Italy, and that has never been reversed.”
Mr Rake told the committee: “There are risks of going in and risks of not going in.
“But the risks of not going in outweigh the risks of going in.
“Many people in continental Europe feel they wish to have the British influence. It is also very important that a decision is reached to eliminate uncertainty.”
“Apart from anything else there are 75 million new members of the EU coming in (who live in the 10 countries poised to enter the EU) who may well join the euro before us.
“Whether or not it is a good idea to have the euro, the euro is a reality, it is there ... and it is something we have to deal with.”
