ECONOMICS

THE ECONOMICS AND POLITICS OF ECONOMIC AND MONETARY UNION

Introduced by Warwick Lightfoot, Economics Editor of The European, on 9 July 1998

The meeting considered the economic arguments for joining or remaining out of the Economic and Monetary Union, whilst recognising that there were political arguments as well.
The decision had been taken to introduce the first stage of EMU on 1 January 1999 and eleven countries wishing to join had been accepted; Greece had not. Britain had exercised the option obtained earlier to defer a decision.
The speaker reminded the meeting of the strict convergence criteria that had been laid down for each currency to qualify (see footnote) and of the surprise that in the end so many had been accepted. Different kinds of ‘creative accounting’ had brought this about. From the viewpoint of the UK he considered that timing was a less significant matter than the inherent difficulties of the enterprise (e.g. economic cycles out-of-phase; different funding of pensions).
The meeting was well attended and a wide range of opinions was advanced from both members and visitors. Comparisons were discussed between the European EMU and the North American Free Trade Area. The latter was regarded as a way of achieving the original concept of a ‘common market’ without the much diminished sovereignty required by EMU. The speaker drew attention to the very high calibre permanent officials at the Central Bank in Frankfurt. He thought they would be able to avoid any severe initial problems in spite of the potential ‘fault lines’ in the structure.
Mr K. L.Walker from the Institute of Directors, South-West, who serves as a UK nominated member of the EC Economic and Social Committee in Brussels, was present and made a valuable contribution largely supporting the speaker. The E&S Committee broadly represents employer and employee organisations and contributes to discussion of EC legislation. He has kindly agreed to open another discussion at a later date.
Members regarded this question as the most important economic one facing our country. The Institution will be arranging further discussions on it in the future.

Convergence Criteria for joining the single currency:
a) inflation no more than 1.5% higher, and
b) long-term interest rate no more than 2% higher than that of
the three countries with the lowest inflation,
c) government deficit no more than 3% of GDP
d) gross public debt no more than 60% of GDP
e) proven currency stability for two years without devaluation.
Rodney Tye