Article by Prof Patrick Minford in the Glasgow Herald
Glasgow Herald: Stay away from the euro, says Minford
IT would be “strongly against” Britain’s economic interests to join the euro, The Institute of Economic Affairs warned today.
Professor Patrick Minford said the country’s interests dictated it should stay out of the single currency, and any gains from the move would be more than outweighed by the losses.
In a paper published by the institute he warns that joining the euro, and therefore losing control of setting interest rates, could also lead to increased economic instability.
He said: “When we don’t set our own interest rates the economy becomes more unstable.
“Within the eurozone, the variability of British output, employment and prices in response to shocks would probably be much increased.”
Minford argues that the benefits of joining the euro, such as savings in transaction costs estimated to be around Â£1bn a year, would be more than off-set by the Â£3 bn cost of the changeover.
He said that while joining the currency would eliminate exchange rate fluctuations with eurozone countries, fluctuations between the euro and the dollar have been “considerable”.
He added that as a global trading country, Britain currently carries out more than 50% of its trading in the dollar area.
Minford, of Cardiff University Business School, also said the “harmonisation agenda” of euro countries was likely to lead to rises in tax rates, social support and regulation in Britain.
He added that the large projected state pension deficits faced by France, Germany and Italy could also fall partly on British taxpayers if Britain joined the single currency.
But Minford said it could be in Britain’s interests to join the euro if there was a more free-market approach to the currency, combined with a more flexible labour market.
He said: “There are circumstances which could lead to a very different euro project, where there would be a very different viewpoint and worries about harmonisation would go away because it would all be more flexible.