In Your Face

In Your Face
Thought provoking opinions on topical issues.

Tuesday, May 06, 2003

The Impact of the Euro

The European Central Bank (ECB), in its monthly bulletin, has warned that if the UK joins the Euro then the UK’s state healthcare system (NHS) will have to be restricted to emergencies. The ECB believes that the cost of maintaining the NHS would threaten the stability of the fiscal and monetary key performance indicators it has set the European hegemony.

The UK Treasury has expressed surprise at this; they believe that national member states have the right to set fiscal policies, monetary policies and tax levels.

I am afraid I must beg to differ with the view of Her Majesty’s Treasury. Anyone with the slightest understanding of economics should recognise that once you surrender your currency, you abrogate your right to set monetary and fiscal policy.

The ECB’s primary mission is to ensure that European inflation does not rise above a certain pre-determined range. It has a number of tools at its disposal to achieve this, including these two:

 It sets the level of interest rates in the Euro zone. The interest rates have a direct effect on the exchange rate of the Euro, and the level of economic growth of the Euro economies. Currently the Bank of England sets the UK interest rates, joining the Euro would mean that the UK interest rates would be set by the ECB. The level set would affect the level of growth of the UK economy, and the tax take of the Treasury. A high level of interest rates would lead to reduced growth, a reduced tax take and a reduced level of funding available for the NHS.

 The members of the Euro zone have agreed to certain fiscal targets, with respect to government borrowing; in order to ensure financial stability throughout the Euro zone. The ECB monitors these targets, and breaches in them results in member states being fined. Therefore increases in funding for the NHS, or changes in the tax rates, which adversely affect the level of government debt can bring about a fine. Again, a clear example of a loss of individual sovereignty over the key levers of the economy.

In addition to creating a stable fiscal and monetary framework, a European hegemony that desires a stable and robust currency will need to put into place a stable, centralised political framework. This political body will set those policies eg; defence, fiscal, social and healthcare which used to be set by individual nation states.

Taking the above, very simple, analysis into account; I fail to understand why the Treasury expresses surprise at the possible impact on fiscal/monetary policy of joining the Euro.

The fundamental issue facing the British people is whether they wish to pass economic and political sovereignty over to a group of un-elected, unaccountable European bankers.

Additionally, the British people may care to question the quality of the economic and political insight of the Treasury as demonstrated by their expression of surprise at the ECB report. The conclusion of the ECB is rather obvious to anyone who has followed the political and economic development of the EU.

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