Last night I attended a gathering of economists and politicians at The Center discussing the current situation vis-à-vis Britain and the Euro. Had such an event been held a year ago, you probably would have been lucky to get three people to show up. After all, the debate about Britain joining the Euro had been dead in the water for years. But things are looking very differently recently after the unprecedented collapse in the value of the pound, and the assembled speakers at the session had some surprising things to say about what may be around the corner for Britain.
The pound has lost 30 percent of its value since last summer, the most dramatic drop in the currency's history. It's fallen from $2.00 to one pound in July to $1.39 to one pound today. The pound fell to just €1.02 recently, when it was €1.33 at the beginning of last year. So the situation for the sterling is bleak.
So now a debate which was once thought to be done and dusted is beginning to resurface, although not yet out in the open in Britain. Speaking at the session, former British MEP John Stevens observed, "It's much easier to talk about Britain and the euro outside than inside." Indeed Stevens, who just wrote a report concluding that the best monetary option for Britain is to join the euro, said that his report has received much more attention in the rest of the world than it has in the UK. In Britain, the currency problem remains the issue that dare not speak its name. Opinion polls have consistently shown that a majority of the public opposes joining the euro, and no politician in today's Britain is willing to take a principled stand on an unpopular issue. Both Labour and the Conservatives know that reawakening the euro debate could easily have the effect of spooking British consumers even further. "If the public hears talk about joining the euro, there will be mass fear that Britain is really in trouble," Stevens said, perhaps only half joking. A country's currency has much to do with its national pride, and having to give up the pound would be a massive blow to Britain's self-esteem.
Yet the country may get to a point where it has few other options. Last night's panelists seemed to agree there is a good possibility the pound may have much further to fall, and a full-on run could cause it to be worth drastically less than the euro. Stevens noted that if the UK were to start negotiations for joining the currency now they would be coming from a position of strength. "We wouldn't be coming just as supplicants, we would be bringing something to the table," he noted. "Britain joining the euro would position it as the world currency." At the same time, it would demonstrate to currency speculators that the pound is a safe currecy. On the other hand, waiting until the bottom has truly fallen out from the pound to begin negotiations would be a very weak position indeed.
But how to sell the idea politically? A representative from the British Chambers of Commerce asked how the organisation could make small-and-medium-sized enterprises come around to the idea. Stevens pointed out that SMEs actually benefit disproportionately from a common currency. Large businesses have mechanisms to get around currency barriers which small businesses do not. Studies have shown that SMEs within the Eurozone have been some of the greatest beneficiaries of the common currency, Stevens said.
But does any political party in Britain have the political will to sell the public on an unpopular issue like this? Simon Titley, a consultant who also worked on the report, said the reticence to do so may be a result of the systemic over-dependence on polls in modern British politics. Public opinion polls may show that a majority of the British are opposed to joining the euro, he said, but those same polls also show that they also don't care very much about the issue either. It's what pollsters call a 'soft issue,' something which people are willing to express an opinion on but actually isn't very important to them. "It's not an issue that would decide an election," he said. "Politicians that are in favour of the euro need to come out of the closet and stop caring what Rupert Murdoch's newspapers will say about them."
So what's likely to happen? All the panelists seemed to think that the next government of the UK will likely be the Tories under David Cameron, who just this week has signaled his intention to leave the main centre-right Europarty in the European Parliament to form a fringe Eurosceptic party, a move many have seen as making the Tories into an isolationist party. However, Titley had an interesting prediction for what may be in store for the a Conservative government. "I think a likely scenario is that a UK Tory government will adopt the euro, under the whole 'Nixon going to China' idea," he said. "Sometimes an idea seems so far to the left that only a right-wing government could do it."
These certainly have been unpredictable times, so I would say even the conservatives bringing the UK into the Eurozone wouldn't surprise me these days!