As reported in this morning’s Sun and in a number of other newspapers, George Osborne has reiterated William Hague’s pledge that the Tories will not join the euro. The Shadow Chancellor, speaking to business leaders, explained why (1) the boom would have been bigger if we had been in the eurozone and (2) the route out of recovery would be steeper…
Why the euro would have made Britain less prepared for recession: "The mess that our economy is in is the result of a debt-fuelled boom that Gordon Brown allowed to build up over the last ten years. It was domestic policy failure that gave us those 125% mortgages and more personal debt than any other economy in the history of the world. But monetary policy in the euro area has been ever looser than here in Britain so if we had joined the euro, credit conditions would have been even looser and the bubble could have been even bigger.’
Why the euro would make recovery harder: "Yesterday the Bank of England delivered the kind of rate cut that Conservatives have been urging and that our economy needs. The result is that interest rates in the euro area are now 0.5% higher than they are here, and they have fallen far more slowly. So, if we had joined the euro, rates would be higher now than they need to be to stimulate demand in the British economy. If the last decade has taught Gordon Brown anything it should be that you have to keep control of interest rates and monetary policy."
In conclusion, George Osborne made the political case against eurozone membership:
"The euro has never been primarily an economic project, it’s a political one. Once you share a currency and a central bank the pressures for closer political union become ever more powerful. We’ve seen those pressures operating over the last few weeks with the concerted attempt to deliver a euro-area spending splurge. Given that we are already borrowing more than any major euro area economy, that would be the wrong solution for Britain. Some euro area politicians have stood up to the pressure – the German finance minister said he wouldn’t join the other “lemmings”. But monetary union will only increase the pressure for closer political union. That’s not what the British people want, and under a Conservative Government they can be confident that it’s not what they’ll get. We fought against joining the euro in the past and we will not join the euro – in the present or the future."