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The euro: safety net or straitjacket?

Mark Mardell | 13:35 UK time, Friday, 30 January 2009

Something of a reply, and a few more questions.

ikamaskeip - do enjoy the star-gazing, but back on Earth read my words again. I did not argue that euro membership does not affect Greece. That would clearly be bonkers. But the substance of your objections is important. I stand by it. Most mainstream economists do think countries like Greece are better off for joining the single currency and would be damaged by leaving. They may be wrong, and they may be proved wrong. But as far as I can see, it is what most academics believe.euros

I am not making the assertion to support any political position but because it is a statement of fact about the current state of opinion. I am not going to give a list of people I talk to on a background basis. I stress they may be misguided. It is not a good time to argue that experts always see the way ahead with great foresight.

However I admit there are two different contentions within my proposition. Perhaps I should have been clearer that there are a range of opinions on the subject. As the merits and demerits of the euro in a financial crisis is something I am sure I will come back to again and again this year, here goes.

My initial rather loose catch-all remarks can be divided into three big questions.

1. Would any of the 16 countries which officially use the euro now be better off if they had kept their original currencies?

It is easy in some places, and Greece is one of them, to find people on the street who grumble about the adoption of the single currency and if pressed might answer "yes" to the above. Within those countries it seems to me only a minority of politicians (for instance the communists in Greece) and a few economists would agree. But this consensus could of course be misguided.

2. Would countries outside the euro be better off if they joined?

There are three sub-categories:

a) Those EU members who have made a clear decision to opt out of the euro, namely Britain, Sweden and Denmark. There is of course a lively debate in all three countries. While it is off the political agenda in the UK, Denmark will probably have a referendum on this next year.

b) Those EU members who have signed up to join in the future: Poland, Hungary, the Czech Republic, Lithuania, Latvia, Estonia, Bulgaria and Romania.

c) Countries outside the EU. In Iceland there is a hugely contentious debate, which I have already written about, over whether the country should join the EU specifically to be within the shelter of the eurozone. There are also the countries on the list to join, like Croatia and Serbia, where I suspect a real debate is some way off. Montenegro already, unofficially, uses the euro.

3. Would any country which at the moment uses the euro be better off if it left? This is where I find common currency among mainstream economists. Jordanbasset is quite right that a former Irish bank official argues Ireland should leave the euro. But is he a lone voice? I accept that it is my job to find out if this view is more widespread. But I repeat that even many of those who dislike the euro observe that leaving would send terrible signals to the international market. I am eager to speak to more people who feel it would be an advantage.

I suspect many will want to answer my questions from a pro- or anti-euro perspective, driven more by politics than economics. There is nothing wrong with that, after all the euro is as much a political as an economic project. But it might be just as fruitful to look at this country by country. There seems to me nothing illogical about a pick-and-mix approach. It seems perfectly possible to argue that the UK is better off staying out, but Iceland would be better off joining, or that the whole project is a mistake, but for individual countries to unilaterally leave would do them no good, to give just two examples.

There's one important qualification to all of the above. I write rather blithely about countries being better or worse off. There are measures of national economic well-being, of course, but it's also true that what is good for bankers may be bad for farmers, what is a delight for exporters may be a nightmare for importers, and so on. If current plans work out, more on this, from Eastern Europe, next week.

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