|
| |
Saturday, July 8, 2006
Britain soars without euro
By DAVID HOWELL
LONDON -- Britain now receives more inward investment than any other country in
the world. So says the Organization for Economic Cooperation and Development
(OECD) based in Paris.
But wait a minute. How can that possibly be? Was not it asserted, at the highest
levels in both Britain and other European governments, that unless Britain
signed up to the euro currency it would lose inward investment disastrously? And
was not this view supported by distinguished industrialists and top economists
all round the world, including in Japan?
Those who believed so strongly a few years back that Britain had to join the
euro zone went even further. Britain, they argued, would be dangerously excluded
from key European economic decisions. It would lose out in the European Union
growth stakes and the City of London would be bypassed as centers like
Frankfurt, within the euro zone, grew in power. The pound was certain to
collapse.
It was only a matter of time, they insisted, before Britain was marginalized and
its roles as a gateway for investment and production for the great European
market was destroyed. The same went, added the experts, for other European
nations, such as Sweden and Denmark, who were unwise enough to stay outside.
Yet all these predictions have been proved wrong. Investment continues to pour
into Britain at a faster rate than ever. The pound has stayed strong. British
growth has more than matched the stagnant euro zone. Exports to the rest of
Europe have expanded.
As for the City of London -- it has never been so prosperous, booming as a
center of both European and global finance, and proving every day that life
outside the euro zone for a great financial center is better than life within
it. Meanwhile Frankfurt, the vaunted rival magnet for finance and banking, has
languished.
Clearly the great figures who pronounced so freely about Britain's need to join
up with the euro currency bloc must have been relying on flawed analysis and
failure to take all the factors into account. And it is becoming easier all the
time to see where they went wrong .
First, the wrong-footed experts assigned much too much weight to the
harmonization of currency denominations, claiming that if Britain stuck to the
pound, traders and investors would be impossibly handicapped and growth would
slow down.
What they overlooked, and what economists often overlook, was the enormous pace
of electronic innovation, which makes the translation of any currency into any
other at the exchange rate of that split second a simple, button-pressing task.
Carrying euros round the EU is convenient for tourists, but that is about the
limit of it (and there is evidence that even tourists in reality quite enjoy
slipping from one currency into another -- it makes them feel more "abroad" and
in an exciting foreign country, which is where most of them want to be).
For businesses it hardly matters nowadays at all what currency they trade in, or
do their accounts in or invoice in.
Second, the enthusiasts for British membership of the euro zone forgot how
inflexible a single monetary system, with a single interest rate, might prove
for diverse economies moving in different cycles and responding to varied
social, historical and political pressures. Outside the euro zone, Britain has
been able to decide an interest rate that is crafted to fit particular British
economic needs and this has given it immense extra vitality and strength.
By contrast France, Spain and Ireland have been stuck with rates dictated by the
European Central Bank that are dangerously low and "bubble-inducing," while
Germany and Italy long for an even lower rate to give their faltering economies
a needed shot in the arm.
Third, the experts who all yearned for a single currency bloc were caught in an
intellectual trap that governed too much of 20th century thinking and that the
21st century is rapidly invalidating.
This is the idea that big blocs are best. Twentieth-century thinkers looked back
to the great armies of the two world wars, to the giant corporations that grew
out of the obvious benefits of mass production and standardization, and to the
wonderful order and control that central direction could bring, which appeared
to be essential to provide direction to both enterprises and whole societies.
Again they were all faulted by technological innovation. Blocs have been
replaced by networks, and networks can operate with enormous efficiency and
adapt with enormous speed to constantly changing conditions in the way that
tightknit blocs can never do. This applies as much in international affairs as
inside the corporation or any national institution.
The single euro-currency concept belongs, and always did belong, to the age of
bloc thinking and to the era of belief in huge organizations that could crush
opposition under their elephantine weight.
But such lumbering beats can no longer keep up with the lightening adjustments
needed at every turn in the pattern and structure of capital flows, and with the
pace of technological change.
That is why Britain has prospered mightily outside the euro, and why there is
little sign of any rekindled enthusiasm to join. Life is better outside this
particular prison that clever theoreticians devised, but of which they failed to
see the unintended consequences.
Other European countries, both inside and outside the EU, have found the same
thing, which is why some of Europe's richest economies, such as Switzerland,
Norway, Denmark and Sweden, along with Britain, are those that have stayed clear
of the euro experiment. How wise they have all been!
|
