Would Britain be better off in the Euro?

[nefertiti]

I heard a discussion on the Radio this morning abut how ill-prepared the Eurozone was to deal with the fallout from the financial crisis - no central bank authority, everyone acting in their own self interest, etc.

This followed on a discussion about Iceland (which is now contemplating applying for the Euro as the best way out of its crisis)

And that got me to thinking: would we be better able to deal with the current financial crisis in or out of the Euro? Is it or should it be an option for us?

What do you think, OTF Finance mavens?

[Wyatt Earp]

Would Britain be better off in the Euro?

Dunno.

[Anton Gramscescu]

Would Britain be better off in the Euro?

Maybe or maybe not, but for a country to do it in the midst of a crisis is like an alcoholic handing over the keys to the drinks cabinet - it's like saying you simply don't have the willpower to solve the problem on your own.

[ursus arctos]

Would Britain be better off in the Euro?

Currency is central to the Icelandic meltdown in a way that just isn't true in the UK.

Evidently, much of the explosion of consumer credit in Iceland in recent times was denominated not in Icelandic Kronor, but rather in Swiss Francs and Yen, so as to allow for lower interest rates. Now that the Kronor is getting killed (it's lost 20% aginst the Euro in a month and more than that against the Swiss Franc and Yen), Icelanders are finding themselves in the same kind of squeeze as Mexicans or Argentinians who had dollar-denominated debt in the 90s.

[N est à?]

Would Britain be better off in the Euro?

What's a maven? I mean, as if there wasn't enough new terminology to digest when trying to get a handle on this stuff.

[Wyatt Earp]

Would Britain be better off in the Euro?

So google already.

[Wyatt Earp]

Would Britain be better off in the Euro?

Anyway, I think in one way it would be nice because you wouldn't have to change money when you went on holiday, but on the other hand the notes are a bit dull-looking.

[Alderman Barnes]

Would Britain be better off in the Euro?

The notes might be dull, but the coins are fun.

There: coins from Germany, Portugal, France and Italy.

[E10 Rifle]

Would Britain be better off in the Euro?

Surely, the current situation is the inevitable consequence of economic but not political union. Sovereign governments have retained the right to make their own political decisions on the economy. Those who've argued so forcefully for the euro have tended to duck this issue.

[Tubby Isaacs]

Would Britain be better off in the Euro?

That seems like a good argument. Any ideas, anyone?

[Brandenburger Toro]

Would Britain be better off in the Euro?

Surely, the current situation is the inevitable consequence of economic but not political union. Sovereign governments have retained the right to make their own political decisions on the economy. Those who've argued so forcefully for the euro have tended to duck this issue.

Eh what?

Iceland aren't in the economic union. The USA sure as hell aren't.

And don't call me Shirley.

[Brandenburger Toro]

Would Britain be better off in the Euro?

Also, for "duck", read "point out time and time again why it isn't relevant, or is outweighed by other factors far more germane to successfully running an economy."

[Tubby Isaacs]

Would Britain be better off in the Euro?

He's not saying there aren't other causes elsewhere. But he has a point that the EU's separating the monetary policy (central, and independent to boot) from political (devolved) is going to cause some problems.

[ad hoc]

Would Britain be better off in the Euro?

I took it to mean that there is de facto economic union through globalisation/deregulation etc, not that it's limited to the EU by any stretch of the imagination.

[Anton Gramscescu]

Would Britain be better off in the Euro?

Toro De France wrote:

Also, for "duck", read "point out time and time again why it isn't relevant, or is outweighed by other factors far more germane to successfully running an economy."

Mostly agree, but this isn't a crisis of poor economic management, it's a crisis of poor financial management/oversight. I know zilch about EU banking rules, but I would have thought that bank regulation was still in the hands of national entities, and so political fragmentation could be playing a role that way, no?

[Brandenburger Toro]

Would Britain be better off in the Euro?

Tubby - why is it going to cause problems? I haven't seen him or anyone else make a convincing case.

ad hoc - in that case, why is the point germane to currency union?

Antonio - yeah, perhaps. But I still don't see why anyone would think that cuts against common currency.

[Anton Gramscescu]

Would Britain be better off in the Euro?

It could cut against common currency without political union. Either both or neither, the argument would run.

[Ginger Yellow]

Would Britain be better off in the Euro?

I think it's safe to say the crisis would have been a lot worse for some countries if the euro didn't exist (eg Portugal, Greece). Having a big central pool of currency liquidity has definitely helped them avoid collapse (although Portgual wasn't doing too well before the crisis anyway). Conversely, some countries might not have been able to get so leveraged without it (Ireland, Spain). Spain's housing boom was very much fuelled by overseas investment in covered bonds and securitisation, and the lack of buyers for those products now will exacerbate the crisis as it has in the UK, especially if the ECB turns off its taps.

The big problem is not so much the split between monetary and political decisionmaking, as the split between monetary and and supervisory functions (although the two splits are obviously related). So you have the ECB acting to control inflation and (very much) secondarily to maintain financial market stability, but any bailouts or corrective action must occur at the national level. So when push comes to shove, as it did on Friday, it's every country for itself, which goes against the whole idea of the EU. There had been some steps to harmonisation and EU level action, but they were nowhere near completion when the crisis struck.

Anyway, I haven't really answered the original question, to which it is very hard to give a simple yes or no. On a monetary level I don't think we would have been, given where the cycles were. But from a capital markets perspective we almost certainly would have been. Sterling isn't isolated enough to shelter the UK from goings on in other currencies, but it does make it more difficult for UK companies to access international investors.

[ursus arctos]

Would Britain be better off in the Euro?

What GY said (though I would add Italy to Portugal and Greece).

It's particularly interesting to see staunch Europeanists Germany be among the first to break ranks with a collective approach once it became clear that their own banks were at risk (though it isn't particularly suprising to anyone who has followed the politics of German banking).

[E10 Rifle]

Would Britain be better off in the Euro?

My point was more a constitutional one - that you can't automatically expect countries in the eurozone to do exactly the same thing in a crisis, because they're separate political entities, with different mandates and interests. If they want to do their own thing in a crisis, then they're perfectly entitled to do so, whether it's a bad idea or not.