Renowned business journalist Ambrose Evans-Pritchard says it would be a terrible idea for the U.K. to drop the pound sterling and join the Eurozone — as some politicians there are now suggesting — even though interest rates would immediately drop and business would be stimulated.
Writing in London’s Telegraph, for which he is the international business editor, Evans-Pritchard indicated that U.K. business leaders must resist renewed pressure to join the Eurozone, which has emerged as a competitive currency for the dollar in a short time.
“The effect of all the stimulus could be delicious for a while,” said Evans-Pritchard. “It might even be enough to re-elect Gordon Brown (the prime minister) if he was clever with the timing. He could blame the onset of galloping inflation on Frankfurt. At first.”
Evans-Pritchard is a long-time opponent of the European Union’s monetary union.
But, Evans-Pritchard said, long-term, the situation would turn grim for the U.K. economically. This is, he said, perhaps eight years or so away. But, “we should have learned by now that the U.K. needs much higher interest rates over time than core Europe. So do Ireland and Spain. Their booms have been stupendous.
“But booms end. Just think what would have happened if Britain had joined EMU (Economic and Monetary Union) at the start. Eurozone interest rates were 2 percent until December 2005,” said Evans-Pritchard. “Rates anywhere near this level would have caused the U.K. boom to explode out of control. Brown’s boom-bust debacle would have been even worse.”
Evans-Pritchard said that the U.K. economy is highly-leveraged and has different rhythms than the economies of continental Europe. Thus, EMU’s ‘one currency for all European economies’ policy would cause violent economic swings for the U.K., from “overheating to under heating —or booms to busts,” Evans-Pritchard said.
The pound sterling’s decline since last August has actually been good for the U.K., Evans-Pritchard said, which is a “text-book currency response to an economic shock.”
Other economic gurus concur with Evans-Pritchard’s take on the euro.
“I completely agree. Joining the euro would be a terrible mistake,” Dr. Herb London, a professor emeritus at NYU, and the president, Hudson Institute, a think tank in New York City, tells Moneynews. “It would cause financial and political harm to the British and have an adverse effect on the U.S./U.K. relations and on the pound sterling. I don’t think it’s likely that this will happen. The British have been in opposition to it for years, which is why the country has retained the pound.”
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