By Niall Ahern, Niall Ahern.
As we approach the end of 2008, it appears that the 'global credit crisis' may well continue to be a permanent feature in news headlines throughout 2009. The banking and credit crisis has proven that every country in the world is vulnerable to the effects of the downturn. The past year has been characterised by bank collapses, a sharp decline in house prices, credit drying up and unprecedented moves by governments to offer multi-billion dollar/pound bail-outs to banks and other businesses. As such, one is led to question whether there will be much to celebrate when the clock strikes midnight to see in the new year.
Looking specifically at the European Union, the economic crisis has led to a much sharper analysis of the economic and political policies being undertaken within EU member states. As EU heads of government and foreign ministers met in Brussels on 11 and 12 December for a two-day summit, there was undoubtedly another factor that was almost certainly in the minds of some of the attendees. This was the continuing decline of sterling which, at the time of the summit, had reached a low of 89 pence to the euro, the lowest since the single currency came into existence a decade ago. However, by 18 December, this had dropped even further as sterling reached an all-time low of 95.5 pence to the euro. Many analysts predict that it is only a matter of time before parity is met and at the rate it has been dropping, this could be reached well before the year is out. Gone are the days of Brits taking advantage of cheap weekend breaks to the continent, where three years ago a euro was worth as little as 69 pence. Britons flying to Eurozone countries over the holiday period and into next year will quickly come to realise that it may have been better value for money to holiday at home.
Worries about the demise of sterling have been coupled with recent debates within Denmark and Sweden - the only other 'old EU' economies that still remain outside the Eurozone - about proposing referendums on euro membership within the next year. In addition, Iceland, which isn't even an EU member state, has been suggested as being the possible 29th member of the EU, because, had it been a member, many of its recent economic troubles would have been avoided. All this leads back to the one country where the euro debate has been remarkably silent until now. In Britain there has been very little debate since Tony Blair and Gordon Brown rejected the idea of British membership of the euro in 2003 when the five economic tests were not met. However, as the events described above indicate, the suggestion that British politicians seem so reluctant to talk about – Britain adopting the euro – will surely have to be re-examined.
In fact, someone has already started the debate for them. Jose Manuel Barroso, the head of the European Commission, stated at the beginning of December that 'the UK was closer to joining the euro than ever before.' Although he admitted that the vast majority of British people are opposed to the idea, he went on to argue that 'those that matter in Britain' had been discussing it. One person rumoured to have been involved in such discussions is Lord Peter Mandelson, the Business Secretary and a staunch pro-euro supporter, but he claims that he cannot recall any such conversation. During the past few weeks, this suggestion has also been picked up by George Osborne, the Shadow Chancellor, although he, when speaking to business leaders in the north east, said that in the current economic climate, abandoning the pound would be the wrong thing to do. That said, Caroline Flint, the Minister for Europe, maintained the Government's status quo by stating that the British position on the euro has not changed. However, if sterling's decline continues, and if the euro does continue to become a stronger and more stable currency than the pound, then surely it is only a matter of time before more involved debates about possible British membership of the euro become more widespread.
It is important to remember however, that there are many obstacles that still stand in the way of British membership. And before any serious debates on the possibility of joining are even entered into, many other factors also need to be considered. First, this is the first real test for the euro, and how it reacts and deals with the worsening economic picture will be seen by many as a test of its credibility. Although membership of the euro has eliminated the possibility of currency crises for countries such as Ireland and Spain, it does not mean that they are completely immune to shocks resulting from the global crisis. External threats could still harm their economies and that is why the events which unfold over the next few months will provide a real test for the currency and the eurozone as a whole.
Other obstacles to British membership are based on Britain's very nature and relationship with the EU itself. The Government's 'five economic tests' would have to be re-examined and each would have to be met before membership is even properly considered. However, even if these tests were met, the rest of Europe would then have to accept Britain's bid to join. Following that, Britain would then have to undergo a transitional period of membership of the single currency exchange rate mechanism before qualifying for full membership, which would take some years anyway.
Finally and most importantly, the largest problem is political. There is currently a complete lack of balanced debate on the euro issue within Britain, with it tending to get left to bashing at the hands of the tabloid press and euro-sceptics. This means that the vast majority of the British public are unenthusiastic about the project. Study after study has revealed that if a referendum on membership were to be held, it would be easily lost. In addition, the 'Europe/euro debate' has never been a vote-winner in Britain and it is an issue that is likely to lead to further splits within political parties. As Labour closes down the gap which the Conservatives had managed to open up between the two parties in the polls, is Gordon Brown really likely to take Britain into a referendum on an issue that many predict the Government could never win? In addition, this also seems especially unlikely given that a general election must be called by the spring of 2010. Finally, it is important to note that even if the idea had crossed the minds of ministers over the past few weeks, aside from Lord Mandelson, no other politician has publically put forward a positive case for Europe which will be essential to lay the groundwork for the euro. If British politicians cannot even manage this, there is little chance of euro membership any time in the near future.
As economic events over the past year have demonstrated, nothing can be ruled out or predicted. But, for the moment, serious debate on the issue of British membership of the euro remains premature. The Government is playing safe by declaring that the policy hasn't changed and that they will focus on other economic issues first. It is too early to tell whether the decline of sterling will continue along with that of the British economy. That is because speculative report after speculative report differs on just how bad the recession will be both for Britain and the Eurozone. If sterling does come out of the economic crisis worse off, then surely Britain should seriously start to consider membership - even if this is only a consideration.
Finally, it is important to remember that throughout 2008, Gordon Brown has said repeatedly to the public that he will do 'everything in his power to protect the British economy'. Perhaps British membership of the euro may be just the thing to protect it. 2009 may indeed be one of the most interesting years for European Monetary Union, since it's introduction to the markets ten years ago. It may prove to be a very interesting year indeed.