Britain Is Smart to Hold Off On the Euro
Since it was launched four years ago, the euro has always been a lot more than a new money. As the currency of 12 Continental nations, it has been a symbol of Europe's values and solidarity. The message was: If you believe in our way of life, come join us. Now, after five years of study, Britain looks ready with its response -- a resounding "no." In a poll of senior business executives released by Market & Opinion Research International in January, only 35% said they thought Britain should switch to the euro as soon as possible. Nearly half said Britain should wait and see. They're right. It is to both Britain's and the Continent's benefit to wait and see.
This isn't just political pique at the Continentals over divisions on the Iraq War and the Bush Administration. It's smart economic opportunism. When the euro was launched, British industry protested loudly. But in the current climate, Britain stands to do much better with its own currency and an independent economy than it does as part of the Continent. How so? Remember when Frankfurt was going to become Europe's financial capital at the expense of London? Well, just the opposite happened as money managers left the Continent to set up shop in the much freer confines of London. Financial Frankfurt is now a shadow of its former self.
Remember how the euro was going to revive the Continental economy to make it a robust rival to the U.S.? Again, just the opposite happened. Jobs moved to lower-cost, less regulated Britain from France and Germany. Entrepreneurs decided to start their new companies in Britain, not France. Investment followed the same path. Britain's historical skepticism about giving up power to Europe not only didn't hurt, it paid off in an unexpected economic growth dividend.
Staying out of the euro may not be the right policy forever. But right now, it is -- for both Britain and the Continent. Indeed, Britain may actually do Europe more good by being on the outside than on the inside. Its more flexible central bank and government fiscal policies shine in contrast with the Continent's rigid European Central Bank and stability pact that restricts government spending even in recessions. And Britain's labor and tax policies are far more flexible.
Slowly, the Continent is following Britain's example, not the other way around. Germany and France are about to start fixing their pension systems and labor work rules. There is talk of making the stability pact more adaptable to the business cycle. And even the European Central Bank is showing signs of becoming more flexible. The Continent, in short, is becoming more like Britain.