Britannia Radio

The Euro is 10 years old and a force in the world.  The countries 
outside the core area are suffering as a result, notably Italy, 
Spain, Portugal, Greece, Austria and Ireland,

Here Ambrose Evans-Pritchard lays out the facts in detail and with 
clarity .  Hague makes it quite clear not only WHY Britain should not 
join but also that under the Conservatives Britain would NOT join.

We exist in interesting times, indeed.

xxxxxxxxxxx cs
===================
TELEGRAPH    1.1.09
The euro's bitter-sweet triumph at 10
If the purpose of the euro is to confront US dollar hegemony and turn 
the European Union into a monetary superpower, it is a signal 
triumph. But politicians should be careful what they wish for.

By Ambrose Evans-Pritchard

On its tenth birthday, the single currency is an unquestioned part of 
daily life for 330m people in sixteen states (Slovakia joins on 
January 1st), spreading almost as widely as Rome's denarius -- the 
first truly Pan-European coin.

There has been no "tissue rejection" by the public, even if 
Eurobarometer data shows that the euro is more accepted than loved. 
Shoppers blame it - unfairly -- for inflation. Half the French still 
think in francs. Oddly, a slew of regional currencies have begun to 
circulate in German regions since the launch of EMU. Sociologists are 
baffled.

Market eagerness to push the euro to sterling parity, and to defiant 
highs against the dollar, yuan, rouble, and rupee, is an undeniable 
stamp of confidence. But success is bitter-sweet. The eurozone itself 
is in deep recession. A currency surge at this juncture is a cruel 
blow for export industry. The full damage will hit in late 2009 as 
the time-lag effects work their curse.

The point of monetary union -- at least for Paris -- was to stop this 
happening. EMU was supposed to shield Europe against the fall-out 
from Anglo-Saxon "casino capitalism" and to ensure a stable currency.

Stable it is not. The Élysée never imagined that it would be a 
currency on steroids, spiking so high that it hollows out the French 
industrial core and drives Airbus to the brink. As President Nicolas 
Sarkozy put it in a moment of fury, "we didn't create the euro so 
that we could no longer build a single aircraft in Europe".

Otmar Issing, ex-High priest of the European Central Bank, says half 
the states of West Europe would now be facing currency storms akin to 
the early 1990s were it not for the fortress strength of EMU.

The yield spreads on Italian, Greek, Portuguese, Spanish, Austrian, 
and Irish debt would be even higher than they are already, amplifying 
the effects of the credit crunch and probably making it too dangerous 
for governments even to think of fiscal rescue plans. "People do not 
seem aware of this. They are now taking the advantages of the euro 
for granted," he said.

This is true in one sense, although the 1990s ructions stemmed from a 
fixed link to the D-Mark, a recipe for disaster. But such claims and 
counter-claims hardly touch on the deeper question of whether EMU is 
a viable undertaking over the long run -- or an "optimal currency 
area" (OCA) in economic jargon. Ten years on, the controversy rages. 
Both sides have enough evidence to say with equal vehemence, "I told 
you so". It all depends which part of the picture you look at.

Let us not forget that the euro is a revolutionary construct. Never 
before have sovereign states of equal weight agreed to abolish their 
currencies -- some dating back to the Middle Ages -- and tied their 
destiny to a supranational bank.

The franc -- minted in 1360 to celebrate the end of Jean Le Bon's 
captivity in England -- evoked France itself, and French voters were 
not easily persuaded to give it up. The Maastricht Treaty passed by a 
wafer-thin margin in September 1992. We will never know how the 
German people would have voted if allowed to decide on the fate of 
their beloved D-Mark, the symbol of national renewal.

Currency unions come and go, typically revolving around one dominant 
power. The euro is a different animal. It has no political anchor. It 
is a leap into the unknown without a state, treasury, debt union, or 
EU social security net to back it up.

For arch-critics at Germany's universities, the decision to press 
ahead with the euro before the creation of a full-fledged EU state 
was to put the cart before the horse. America had forged its union 
before issuing a currency, as had 19th century Germany.

This is the bigger question to be tested over the euro's second 
decade. Currency unions can mask risk for a while. They shield 
sinners long enough to let imbalances get out of hand, storing up 
trouble for a more traumatic crisis later.

Eurosceptics say this is exactly what is happening. The gap between 
North and South has grown ever wider as Europe's nations hold true to 
type, and as the ECB's one-size-fits-all policy has vastly different 
effects on different cultures. Italy has lost 40pc in labour cost 
competitiveness against Germany since the currencies were fixed in 
1995, and Spain has lost about 35pc.

The reasons are complex, rooted in the wage-bargaining structures, 
the protected guilds, and the banking systems of countries refusing 
to give up their traditions. In Spain, 70pc of wages are indexed to 
inflation, and over 98pc of mortgages are linked to floating Euribor. 
Is it any wonder that Spain's property boom mushroomed out of control 
when the ECB held rates at 2pc (to help Germany, then in trouble)?

Latin Bloc states could have taken drastic steps to make their 
economies more compatible with Germany. They failed to do -- despite 
heroic efforts by officials, especially at the Bank of Spain -- 
because the political class never understood the implications of EMU. 
Nor did Germany's leaders, for that matter. The shining exception is 
Finland.

Current accounts tell the sorry tale. Germany has a surplus near 7pc 
of GDP, while deficits have reached 10pc in Spain and Portugal, and 
14pc in Greece. Club Med extravagance can continue only as long as 
foreign investors are willing to plug the gaps with fresh capital. 
Italy's debt headache is different, but no less serious. As Europe's 
most indebted state, it must roll over ?200bn of bonds this year in 
hostile markets.

It will not be easy for victims to claw back competitiveness within 
the constraints of monetary union. They will have to "deflate" wages 
relative to Northern Europe, but there lies the risk of a self-
feeding debt trap.

We are shifting into the political realm in any case. Spain's 
unemployment has jumped from 8pc to 13pc in little over a year, and 
some analysts are predicting 18pc by 2010. When does civic patience 
snap? Nobody knows, but the ferocity of last month's riots in Greece 
is a warning.

As Europe's slump deepens this year we may find out if it matters 
whether or not the euro is a stateless currency. In dollar land, 
Washington disburses a fifth of GDP. A system of "fiscal transfers" 
automatically shifts stimulus from healthy regions to bust zones. 
This is how an 'OCA' self-adjusts. We may find out too whether 
euroland enjoys the solidarity of a nation, "all for one and one for 
all", when the chips are down. German body-language so far does not 
suggest that it does.

For now, the eurozone is basking in glory as the world's ultimate 
safe-haven. Icelanders are eyeing the currency longingly, and Denmark 
has paid a high price (two rate rises into the crisis) for its semi-
detached role in the Exchange Rate Mechanism. The Poles are trying to 
rid themselves of the zloty as fast they can.

Berkeley Professor Barry Eichengreen says the euro is the "great 
winner" of this financial crisis, confounding those in the Milton 
Friedman camp who thought EMU would blow apart in the first bad 
storm. The nature of this banking drama has played -- unexpectedly -- 
to EMU's strengths, he argues.

Banks in European states outside EMU mostly lack a domestic currency 
used for international dealings, so they have borrowed in euros (and 
dollars). This has proved to be an Achilles Heel. "The implication is 
clear. National banking systems need a lender of last resort. In 
small countries, where a significant share of bank liabilities is in 
someone else's currency, the national central bank lacks this 
capacity. The only options are then to slap draconian controls on the 
banking system or join the euro area," he says.

His verdict is that every country except perhaps Britain will have to 
join Euroland. "The writing is on the wall", he said.

So the debate goes on. For defenders of sterling - and the Swedish 
and Norwegian crowns -- the precipitous slide against the euro over 
recent months is broadly a boon, unless you work in the travel 
industry, or ski a lot. It acts as a shock absorber at a crucial 
moment, helping to cushion the economy against debt deflation.

Export profits may hold up long enough to give a lifeline to UK 
manufacturing and service firms as banks shut off credit lines. It is 
the difference between survival and failure for thousands of healthy 
companies. This is what an independent currency is for. It preserved 
social stability in 1931 when Britain left the Gold Standard, and 
again in 1992 on leaving the ERM (from which the pound later roared 
back to a higher level, at the appropriate time).

We are too close to events to draw any definitive conclusions about 
the workings of EMU or the crash in sterling. There will be many 
twists and turns before this great debacle has played itself out 
across the world.

When the Chinese leader Chou-en-Lai was asked what he thought about 
the French Revolution, he replied "too soon to tell". To judge the 
euro revolution on just a decade is frivolous.
========================
DAILY MAIL    1.1.09
EXCLUSIVE: Tories will never take Britain into euro, vows Hague
By JAMES CHAPMAN

A Tory government would never adopt the euro, William Hague has 
declared.

On the tenth anniversary of the single currency, he warned that 
senior Labour politicians were seeking to use the pound's decline as 
an excuse to scrap it.

And the Shadow Foreign Secretary said he doubted the Government's 
pledge of a referendum on the euro because it had failed to deliver 
one on the EU constitution.

Mr Hague also seized on remarks by Business Secretary Lord Mandelson 
that 'our aim, our goal, should be to join the single currency'.

In an interview with the Mail Online, the Tory heavyweight said: 
'Something of a cheek, isn't it  -  to make this country's economy so 
badly prepared for recession that our currency goes weak at the 
knees, and then say that if it's that weak we had better get rid of it?'

The issue of euro entry, long dormant in Britain, is back on the 
agenda amid a dramatic run on the pound.

The fall  -  nearly twice the size of the humiliating devaluation of 
1967  -  has brought sterling close to parity with the EU currency.

Jose Manuel Barroso, the EU President, claims 'the people who count 
in Britain' have told him privately they were now ready to sign up 
because 'if we had the euro we would have been better off'.

But Mr Hague said: 'As the pound lurches, veers and staggers, this 
week's falls have brought it to within an ace of parity to the euro, 
so that in tourist exchange rates one pound is already sometimes 
worth about 99 cents.
'Only a year ago there were 1.4 euros to the pound. As the pound has 
plummeted in recent months, so there have been the first flickerings 
of life around an idea dormant for the last six or seven years: that 
Britain, too weak to maintain its own currency, should sign up to the 
euro instead.

'When you think about it the idea of abandoning your currency when it 
has lost a lot of its value is a pretty stupid one  -  rather like 
thinking that if you have let your house run down in value until it 
is the same as a smaller one next door, it is a good time to swap.

'We all know that in that situation you have to learn to look after 
your house better.

'A Conservative government under David Cameron would have no 
ministers telling Brussels we would be better off without the pound 
and no goal of joining the euro one day. We would never join the euro.'

Mr Hague's unequivocal pledge signals that the Tories plan to make 
the euro a central issue in June's elections to the European 
Parliament, where Mr Cameron will be under pressure to demonstrate 
further progress against Labour.

Slovakia today becomes the 16th country to adopt the euro since its 
introduction on January 1, 1999.

Mr Hague dismissed the claim from Labour's euro-fanatics that Britain 
would be weathering the economic storm more successfully if it had 
signed up.

'Since the interest rates in the eurozone have been lower than ours 
for many years, it is fair to assume that, had we been in the euro 
all this time, Gordon Brown's boom would have been even more 
unsustainable,' he said.
'And since those euro interest rates are now higher than those set by 
the Bank of England, it is also fair to assume that Brown's bust 
would now be even more dramatic and painful. So for Britain, being in 
the euro would have made matters even worse, and our jobless totals 
would now be climbing even faster.

'In the light of that truth it is incredible that the policy of 
Labour ministers, as Lord Mandelson has clearly put it, is that "our 
aim, our goal, should be to join the single currency".

'Of course, Labour have promised a referendum if ever they want to go 
ahead and scrap the pound.

'But then they also promised everyone a vote on signing up to the 
European Constitution, and do you remember having one? The truth is 
we need rid of our Government rather than our currency.'

Mr Hague claimed the reasons for not joining the euro a decade ago 
were even more valid today.

British families were more likely to have variable-rate mortgages, 
Britain has a much bigger financial services sector and more of our 
trade and investments are denominated in U.S. dollars, he said.

These factors meant that the interest rate set for Greece, Germany or 
Italy was not necessarily appropriate for the UK, he added.

'Giving up our currency would mean we would lose a vital tool for 
trying to run the British economy in the interests of the people of 
Britain: and that means an unacceptable loss of the independence of 
this country,' he added.

The Government's line is that it 'sees benefits in euro membership' 
but will not join unless various economic tests are met.