Some welcome debunking of the simplistic call for Britain to join the
Euro follows! (Incidentally, When? At the present ?1.11 or at
?1.00 or at ?0.95 ?)
I was going to forward the speech that Cameron is making today but
the release is VERY long. After setting out Tory policy in the
current crisis - not easy to do when the situation is changing so
rapidly - the then turns to a very important new area of action: -
rooting out and bringing to justice not those in the financial world
who have been foolish or reckless, but those who have broken the
law. He suggests there are many of the latter. I recommend the
speech and you can find the release in full on http://
www.politicshome.com/landing.aspx
However, I give below Conservative Home's brief resume !
xxxxxxxxx cs
=======
TELEGRAPH 15.12.08
1. Ignore the europhiliac chorus - we need the pound now more than ever
The europhiliacs are on the march again. They have been pushing three
arguments in favour of the UK joining the euro.
By Roger Bootle
First, the recent fall in the exchange rate has taken the pound to a
competitive rate which it would be advantageous to lock in.
The current rate is 15pc below that seen on the day the euro was
created in 1999, 14pc below the rate ruling when the Treasury last
assessed the five entry tests in June 2003 and 20pc below the rate of
two years ago.
Second, the recent sharp swings in the UK's exchange rate have
supported the idea that as a medium-sized economy, during periods of
global instability the UK's exchange rate is always going to be
susceptible to volatility. The euro would be a safe haven.
Third, the recent problems in the UK's banking system have
highlighted the potential perils of having financial liabilities that
dwarf the size of the economy. The UK is like a gigantic hedge
fund. If we were to adopt the euro, we would secure the backing of
the European Central Bank and the fiscal power of the whole euro-zone.
There is something in all of these arguments, although not much in
the last one. I cannot see other eurozone members being keen to pour
resources into supporting the City of London in a banking crisis.
Moreover, there are two strong counter-arguments. First, joining the
euro would require the UK to hand over the responsibility for setting
interest rates and other forms of monetary policy to the ECB.
It sets euro monetary policy to achieve economic objectives for the
eurozone as a whole, not for individual member countries. Our economy
is very different from the eurozone average. Consequently, for much
of the time, euro interest rates would be wrong for us.
Moreover, although the ECB has, on the whole, done a pretty good job,
it has displayed marked characteristics which may be very unhelpful
in current circumstances.
During its 10 years of existence, it has regularly been slower to
respond to events than other central banks and less willing to change
interest rates as aggressively.
And just think how bad things would be now if the UK had adopted the
euro at its formation in 1999, as the europhiliacs then urged.
Our interest rates would have consistently been nearly 2pc lower than
they in fact were. The result would have been an even bigger bubble
in our housing market, leading to an even larger collapse and a
deeper recession.
Second, it is all very well saying that the pound is now at a
competitive level, but if we had already joined the euro the pound
would not have been able to fall to this level.
And if we were to join it now, it would not be able to fall in future
recessions - or to rise, if circumstances so required, as, believe it
or not, some day they might. The simple fact is that there is no
right exchange rate for all seasons. The key is to retain flexibility.
Without the recent 20pc fall in the pound, the UK's recession would
be much deeper and much longer. The ability of a more competitive
exchange rate to boost activity is even more crucial when the
capacity of lower interest rates to stimulate demand is impaired
by the banking crisis.
Consider the plight of Italy. In time-honoured fashion, it has
allowed its costs and prices to rise faster than the eurozone average.
The result has been a massive loss of competitiveness, both inside
and outside the eurozone. Traditionally, Italy got out of this sort
of mess by devaluing. Now it is stuck with having to grind its
relative costs down through the effects of depression.
It is all very well saying that a lower exchange rate imposes no
discipline and the virtuous path is to suffer. For Italy, the
virtuous path could be the road to disaster. If we were in the euro,
that could be our fate too.
The key reason why the UK emerged from the Great Depression of the
1930s earlier than most major economies was that it left the Gold
Standard early, and subsequently enjoyed a significant boost from a
lower exchange rate and lower interest rates.
Similarly, the UK managed to shrug off the recession of the early
1990s only because the exchange rate fell sharply and we were able to
set our own interest rates after the pound was ejected from the
Exchange Rate Mechanism in 1992.
The urge to throw in our lot with the continentals and let those
nice, clever chaps in Brussels or Frankfurt manage our affairs
strengthens whenever we experience one of our periodic bouts of
national depression and loss of self-confidence.
The drive to join the EU in the first place originated in this way,
and so did our membership of the ERM.
We are now passing through another cycle. Until recently, we suffered
from national hubris - the end of boom and bust; our marvellous
fiscal rules; our wonderful MPC; our outperformance of the
continental economies leading to gross over-confidence, to the point
where the Prime Minister took glee in lecturing our European friends
on how to run their economies. Then disaster.
It is now surely clear that the Treasury, the Bank and the Financial
Services Authority have made a gigantic Horlicks of managing our
economy.
They, and we, are bound now to suffer from a deep depression of mood
as well as economic performance. In such a frame of mind it is unwise
to take radical decisions. The wise thing to do is to carry on until
the mood lifts.
As one of those who was not taken in by the Brownian delusion of
economic transformation, and has not experienced the associated yo-
yoing of moods, let me say this: the eurozone is not going to have a
picnic either.
Indeed, the strains will be intense and it is far from obvious that
the ECB will be as imaginative and urgent as the Bank of England in
seeking cures.
Grim though things will be here, eventually they will get better. Out
of the debacle of the ERM exit, came a period of genuinely successful
UK economic management and good economic performance.
It can happen again - provided that we retain control of our own
affairs.
---------------------------------------------------------------
Roger Bootle is managing director of Capital Economics and economic
adviser You can contact him at roger.bootle@capitaleconomics.com
========================
CONSERVATIVE HOME 15.12.08
Cameron: We won't treat the richest any differently from the poorest
That's essentially the message of a speech - entitled A Day of
Reckoning - that David Cameron is giving in London Docklands this
morning:
"In the good times, some people working in the financial services
industry paid themselves vast financial rewards - salaries and
bonuses beyond the comprehension of most of us. Now when it's all
gone wrong, they have been bailed out by the taxpayer. Nurses and
cleaners and teachers and many millions of others, working in every
part of our economy they will foot this multi-billion pound bill.
Well: on behalf of the taxpayer, on behalf of the nurse on £20,000 a
year, on behalf of the cleaner on the minimum wage, on behalf of
working families worrying this Christmas like never before about what
next year will bring I say it is fair and reasonable that those
responsible are held to account for their behaviour and that we show
clearly that in this country, there is not one rule for the rich and
a different rule for everybody else. Fairness also means
understanding that the whole financial services industry has had its
name blackened - and wrongly. Over a million people work in this
industry, most of whom are honest and hard working. It's in their
interests too that we make sure we root out any wrongdoing that may
have happened, whoever is involved, however high or well-connected
they may be."
Mr Cameron welcomed the recent commitment from the FSA to "bring more
criminal prosecutions in the future":
"The FSA and the SFO should be following up every lead, investigating
every suspect transaction. And the government should be urging them
on, because we need to make it one hundred percent clear: those who
break the law should face prosecution."
The Conservative Party is determined to blunt the two central Labour
attacks that the Conservative Party is the do-nothing party during
the recession and that it is the party of the wealthy. I'm told to
expect almost daily activity for at least the next month.
========================
Headline News 15.12.08
=House prices to crash 30 per cent, Barclays chief executive John
Varley warns
House prices will crash a further 15 per cent next year, the boss of
high street bank Barclays has admitted. (Telegraph)
= Electrolux to cut 3,000 jobs due to downturn
World's second-biggest electrical appliance maker warns on profits
after US and European sales fall in November and December (Times)
Postal union vows to fight privatisation
Government to publish report suggesting an overhaul of Royal Mail,
targetting a pension deficit that will reach £7bn (Times)
America split over battle to save US carmakers
Almost 150 years after the Civil War, the Union and Confederacy are
squaring off again over the dilemma facing Big Three(Times)
Trichet warns on fiscal indiscipline
ECB chief says policymakers must keep to rules (FT)
Middle classes put spending on hold
The highest-earning British households are increasingly holding back
from spending because of fears they will struggle to borrow in
future, Bank of England research found (FT)
===============
TELEGRAPH 15.12.08
1. Ignore the europhiliac chorus - we need the pound now more than ever
The europhiliacs are on the march again. They have been pushing three
arguments in favour of the UK joining the euro.
By Roger Bootle
First, the recent fall in the exchange rate has taken the pound to a
competitive rate which it would be advantageous to lock in.
The current rate is 15pc below that seen on the day the euro was
created in 1999, 14pc below the rate ruling when the Treasury last
assessed the five entry tests in June 2003 and 20pc below the rate of
two years ago.
Second, the recent sharp swings in the UK's exchange rate have
supported the idea that as a medium-sized economy, during periods of
global instability the UK's exchange rate is always going to be
susceptible to volatility. The euro would be a safe haven.
Third, the recent problems in the UK's banking system have
highlighted the potential perils of having financial liabilities that
dwarf the size of the economy. The UK is like a gigantic hedge
fund. If we were to adopt the euro, we would secure the backing of
the European Central Bank and the fiscal power of the whole euro-zone.
There is something in all of these arguments, although not much in
the last one. I cannot see other eurozone members being keen to pour
resources into supporting the City of London in a banking crisis.
Moreover, there are two strong counter-arguments. First, joining the
euro would require the UK to hand over the responsibility for setting
interest rates and other forms of monetary policy to the ECB.
It sets euro monetary policy to achieve economic objectives for the
eurozone as a whole, not for individual member countries. Our economy
is very different from the eurozone average. Consequently, for much
of the time, euro interest rates would be wrong for us.
Moreover, although the ECB has, on the whole, done a pretty good job,
it has displayed marked characteristics which may be very unhelpful
in current circumstances.
During its 10 years of existence, it has regularly been slower to
respond to events than other central banks and less willing to change
interest rates as aggressively.
And just think how bad things would be now if the UK had adopted the
euro at its formation in 1999, as the europhiliacs then urged.
Our interest rates would have consistently been nearly 2pc lower than
they in fact were. The result would have been an even bigger bubble
in our housing market, leading to an even larger collapse and a
deeper recession.
Second, it is all very well saying that the pound is now at a
competitive level, but if we had already joined the euro the pound
would not have been able to fall to this level.
And if we were to join it now, it would not be able to fall in future
recessions - or to rise, if circumstances so required, as, believe it
or not, some day they might. The simple fact is that there is no
right exchange rate for all seasons. The key is to retain flexibility.
Without the recent 20pc fall in the pound, the UK's recession would
be much deeper and much longer. The ability of a more competitive
exchange rate to boost activity is even more crucial when the
capacity of lower interest rates to stimulate demand is impaired
by the banking crisis.
Consider the plight of Italy. In time-honoured fashion, it has
allowed its costs and prices to rise faster than the eurozone average.
The result has been a massive loss of competitiveness, both inside
and outside the eurozone. Traditionally, Italy got out of this sort
of mess by devaluing. Now it is stuck with having to grind its
relative costs down through the effects of depression.
It is all very well saying that a lower exchange rate imposes no
discipline and the virtuous path is to suffer. For Italy, the
virtuous path could be the road to disaster. If we were in the euro,
that could be our fate too.
The key reason why the UK emerged from the Great Depression of the
1930s earlier than most major economies was that it left the Gold
Standard early, and subsequently enjoyed a significant boost from a
lower exchange rate and lower interest rates.
Similarly, the UK managed to shrug off the recession of the early
1990s only because the exchange rate fell sharply and we were able to
set our own interest rates after the pound was ejected from the
Exchange Rate Mechanism in 1992.
The urge to throw in our lot with the continentals and let those
nice, clever chaps in Brussels or Frankfurt manage our affairs
strengthens whenever we experience one of our periodic bouts of
national depression and loss of self-confidence.
The drive to join the EU in the first place originated in this way,
and so did our membership of the ERM.
We are now passing through another cycle. Until recently, we suffered
from national hubris - the end of boom and bust; our marvellous
fiscal rules; our wonderful MPC; our outperformance of the
continental economies leading to gross over-confidence, to the point
where the Prime Minister took glee in lecturing our European friends
on how to run their economies. Then disaster.
It is now surely clear that the Treasury, the Bank and the Financial
Services Authority have made a gigantic Horlicks of managing our
economy.
They, and we, are bound now to suffer from a deep depression of mood
as well as economic performance. In such a frame of mind it is unwise
to take radical decisions. The wise thing to do is to carry on until
the mood lifts.
As one of those who was not taken in by the Brownian delusion of
economic transformation, and has not experienced the associated yo-
yoing of moods, let me say this: the eurozone is not going to have a
picnic either.
Indeed, the strains will be intense and it is far from obvious that
the ECB will be as imaginative and urgent as the Bank of England in
seeking cures.
Grim though things will be here, eventually they will get better. Out
of the debacle of the ERM exit, came a period of genuinely successful
UK economic management and good economic performance.
It can happen again - provided that we retain control of our own
affairs.
---------------------------------------------------------------
Roger Bootle is managing director of Capital Economics and economic
adviser You can contact him at roger.bootle@capitaleconomics.com
========================
CONSERVATIVE HOME 15.12.08
Cameron: We won't treat the richest any differently from the poorest
That's essentially the message of a speech - entitled A Day of
Reckoning - that David Cameron is giving in London Docklands this
morning:
"In the good times, some people working in the financial services
industry paid themselves vast financial rewards - salaries and
bonuses beyond the comprehension of most of us. Now when it's all
gone wrong, they have been bailed out by the taxpayer. Nurses and
cleaners and teachers and many millions of others, working in every
part of our economy they will foot this multi-billion pound bill.
Well: on behalf of the taxpayer, on behalf of the nurse on £20,000 a
year, on behalf of the cleaner on the minimum wage, on behalf of
working families worrying this Christmas like never before about what
next year will bring I say it is fair and reasonable that those
responsible are held to account for their behaviour and that we show
clearly that in this country, there is not one rule for the rich and
a different rule for everybody else. Fairness also means
understanding that the whole financial services industry has had its
name blackened - and wrongly. Over a million people work in this
industry, most of whom are honest and hard working. It's in their
interests too that we make sure we root out any wrongdoing that may
have happened, whoever is involved, however high or well-connected
they may be."
Mr Cameron welcomed the recent commitment from the FSA to "bring more
criminal prosecutions in the future":
"The FSA and the SFO should be following up every lead, investigating
every suspect transaction. And the government should be urging them
on, because we need to make it one hundred percent clear: those who
break the law should face prosecution."
The Conservative Party is determined to blunt the two central Labour
attacks that the Conservative Party is the do-nothing party during
the recession and that it is the party of the wealthy. I'm told to
expect almost daily activity for at least the next month.
========================
Headline News 15.12.08
=House prices to crash 30 per cent, Barclays chief executive John
Varley warns
House prices will crash a further 15 per cent next year, the boss of
high street bank Barclays has admitted. (Telegraph)
= Electrolux to cut 3,000 jobs due to downturn
World's second-biggest electrical appliance maker warns on profits
after US and European sales fall in November and December (Times)
Postal union vows to fight privatisation
Government to publish report suggesting an overhaul of Royal Mail,
targetting a pension deficit that will reach £7bn (Times)
America split over battle to save US carmakers
Almost 150 years after the Civil War, the Union and Confederacy are
squaring off again over the dilemma facing Big Three(Times)
Trichet warns on fiscal indiscipline
ECB chief says policymakers must keep to rules (FT)
Middle classes put spending on hold
The highest-earning British households are increasingly holding back
from spending because of fears they will struggle to borrow in
future, Bank of England research found (FT)
===============
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