Expert: Wesley Ball - 4/16/2000

Question
Is it realistic for any British government to claim that it intends to play a central and constructive role in the affairs of the EU so long as the UK and Sterling are not part of EMU?

Answer
Dear Oliver,

This is a bit of a difficult question to answer without ambiguity because it ultimately relies upon a highly opinionated view of how the EU works as a set of interconnecting institutions and the nature of EMU. My personal opininion is quite simply "no", but it is a decision that you will have to make for yourselves.

Here are a few things that are worth considering. This sounds like an essay question, so if anything is unclear, give me a shout and I will try to explain it better.

i) The interrelationship between the single European market and EMU. EMU is often seen as a logical extension of the SEM, and authors like Padoa-Schippoa (I think that is how you spell his name) highlight what is called the 'inconsistant quartet'. This shows that in a single market where there is free movement of capital and labour, and the end to tariff and non-tariff barriers, there are two monetary options: free floating exchange rates or a single monetary policy. Without either of these two options you get speculation on currencies which weaken intra-market trade. People that use this model say that to have free-floating ERs is pointless because areas within the market will use competative devaluation to get a temporary competative advantage in the market. They therefore conclude that one should go to a single monetary policy, ie. EMU. Bearing this linkage in mind it seems ludicrous for the UK to be 'out' because it loses control of the way the single market operates, however, the UK, unambiguously wants and needs to be a part of the single market as it greatly eases and facilitates trade with our largest trading partners.

2) EMU is 'economic' as well as 'monetary' union. The economic part is partly expressed in the convergence of the budgetary positions of the member states (protocol 5 of the Treaty establishing the European Communities) and the expression in Article 103 para. 1 (of the Treaty establishing the European Communities) that "the economic policies of the participating member states are of common concern". The reason that this is necessary is because part of the way to even out regional recessions is to use fiscal measures to redistribute cash. The EU has, since 1988, had structural funds to regenerate deprived areas of the EU, and the UK has been particularly effective at garnering these funds. However, the onset of EMU means that these will be expanded, and focussed on smoothing out problems in Euroland, if we are not in it we are less likely to get and areas like Cumbria, Northumbria, South Wales, Northern Ireland, etc. are going to suffer.

3) The central committee in the Council of Ministers (the main decision-making body of the EU) that deals with EMU is called Euro X and contains all the finance ministers of Euroland countries... we are not on it. But it is this committee that will potentially set the agenda for the rest of the decision-making in the Council.

4) And finally a personal point. If we buy into the European Agenda - which all British Governments since Macmillan have, including Thatcher - we should try to change things as they are being shaped. The EU gets projects through with a massive amount of political will, often overcoming apparently insurmountable obstacles. One should, therefore fight the battles that we can win and not and play with a reasonable strategy. During the Beef War we lost our chance to be on Euro X as an adivsory member because we were too busy vetoing everything that we possibly could on the Council - we were effectively excluded. And during Thatcher's leadership she tried to block the Delors Committee (which set out the first concrete and realistic proposals for EMU in 1989) rather to work within it and alter the report to a moderate proposal. She tried to scupper it rather than tinker with it and subsequently failed in every respect. It seems to me that the EU has some brilliant bits about it that we could all agree on, but while we adopt this "having none of it" attitude we lose out on the chance to moderate those aspects which threaten our national identity.

I hope that these points help. If you need any calrification on the economics of it all give me a shout, but I think that your best bet is to look at this in an institutional way and consider how not being in EMU effects our position in the decision-making process of the Union.

Good luck,

Wes.