POLITICAL MANAGERS: Battered or not, the Euro rolls on - No government will have a veto against the single currency's pivotal role as fierce competition from price transparency begins to bite

POLITICAL MANAGERS: Battered or not, the Euro rolls on - No government will have a veto against the single currency's pivotal role as fierce competition from price transparency begins to bite - Have you heard about parity parties, Secretary of State? my p

by MICHAEL HESELTINE
Last Updated: 31 Aug 2010

Have you heard about parity parties, Secretary of State? my private secretary inquired one day in the mid-1980s. As it happened, I had not, but it appeared that the wild young things of the New York Stock Exchange were about to celebrate the trade of one dollar for one pound. Actually, the corks stayed in the bottles as this historic humiliation never occurred.

But we were saved by only a hair's breadth. A week is a long time in politics and more than 15 years is another world, but I couldn't help but remember this vignette of economic history as I read of the euro's battering.

Of course, Mrs Thatcher and her ministers didn't like what was happening to the pound, but there was little they could do about it except pursue sensible economic policies, make structural reforms and hope sentiment would change. It did. The pound against the dollar has since appreciated by some 60%.

The important point was the limited ability of the government to do much about it. What did sovereignty mean? What options were available to the government that would have reversed the crisis of confidence it faced?

All the options would have made things worse. Freedom to trespass outside the markets' perceptions of good sense carries too high a price to be politically acceptable.

So I watch the speculators drive the euro down and, in consequence, the pound up. First the dollar, then the 90-cent parities are broken. Eurosceptics have 'freefall' prominent in their vocabulary. It is nonsense. The eurozone has inflation under control, low interest rates and overall growth rates the equal of ours. There is no rational explanation for what is happening.

It will be reversed. The problem is not so much if as when.

Tony Blair is where Margaret Thatcher was but in reverse, with too high a pound against the euro, as opposed to too low against the dollar. He shares, however, the same impotence. I think he could help by declaring a firm policy to join the euro (confidence building), but at a lower exchange rate (market calming). But I would never claim that such a statement is likely to be of major assistance to the euro. The central bankers of euroland have a storm to weather and, having invested much political will, weather it they will.

The issue is part of Britain's wider problem with Europe. Every prime minister since Harold MacMillan in the 1950s has known that our political and economic self-interest is inextricably interwoven with that of our European neighbours. Yet our Government is caught like a rabbit in the crossfire of Britain's North American-owned newspapers.

Our manufacturing companies export 60% of their product to Europe. Their costs have in effect increased by 20% as a result of sterling's appreciation. It doesn't need the CBI surveys to tell us that trouble looms - although they clearly do.

I have long believed that public sentiment towards the euro would be moved by events that themselves would accelerate as the currency became everyday coinage on the continent. The threat to manufacturers and, in consequence, inward investment will lead managers to explain to employees in short sentences where Britain's self-interest and jobs lie.

In the meantime the europhobes were headlining their 'euro by the back door' mythology over the merger of the London Stock Exchange with its German equivalent. British company shares to be quoted in euros was the perceived threat as we munched our way through our American-owned cornflakes.

Thank God for the London Stock Exchange, I say, which had the good sense to negotiate a reasonable deal that consolidates London's position as Europe's financial centre and persuade the American high-tech market Nasdaq to join as a partner. That is what being at the heart of Europe demands - positive initiative to establish our interests in tomorrow's world.

The influence of euroland will grow - not just through back doors or front doors, but through myriad contact points over which no government has an effective veto. The introduction of notes and coins coupled with e-commerce will release a degree of enhanced competition as a result of price transparency for the consumer that will accelerate at an unprecedented pace.

Tax harmonisation will become a major political issue as people perceive that disparate government taxing policies distort industrial and commercial opportunities. Tourists and business people will see how silly it is that, whereas a dozen euro countries can live well without exchange-rate differentials and currency costs, we can't.

Our shopkeepers will price their goods in both euros and pounds to attract continental purchasers. Our companies will be forced by their larger customers to bid for contracts in euros, thus exposing them to an exchange-rate risk that their continental competitors don't have to carry.

The world and our time zone within it is changing at a gathering pace.

Britain's European policy should be about keeping ahead of the game, not dragging our feet a considerable distance behind it.

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