Disillusionment with what was once called "the Project" is almost total in the face of grinding austerity, a double-dip recession that has already lasted 18 months and a jobless rate of Let's do one of Niall Ferguson's virtual history exercises and think through what would have happened had Brown been overruled and UK entry into the single currency fixed for Stage one would have been the transition from the pound to the euro. The most important part of this process, to fix the right level for the pound to join at, proved quite a test for the new chancellor, Charles Clarke, the man chosen by Blair to replace Brown, who was now sitting on Labour's backbenches.
Sterling had already been overvalued in the early s, with hot money attracted into London by a combination of relative high interest rates and a prolonged period of strong growth. The UK government feared that joining the euro at the wrong rate would penalise British manufacturers, while those already in the single currency were concerned that too cheap a rate for sterling entry would hand an added competitive advantage to the UK's strong financial services sector.
Despite attempts by the new governor of the Bank of England, Mervyn King, to drive down the level of the pound, when the time came for the euro to be adopted it was clear that the exchange rate was too high. That, said Britain's new partners in the single currency, was the penalty paid for failing to join from the outset. Stage two of the process would have been the bubble phase. Having ceded the right to conduct its own monetary policy, the UK had to accept the interest rate the European Central Bank ECB set for the eurozone as a whole.
As one of the bigger members of the club, Britain carried weight at the discussions in Frankfurt, but monetary policy proved to be far too loose for a country already in the early stages of a housing boom and where the balance of trade was deteriorating year by year.
As in Spain and Ireland, a spectacular bubble developed in the housing market, fuelled by excessively low lending rates, an "anything goes" mentality among lenders and lax regulation. Even outside the euro, the UK had quite a boom going in the housing market in the mids.
Inside, it would have been like the wild west. When the crash came in it was a spectacular one. The financial markets imploded, the banks stopped lending and cheap credit dried up. The housing market collapsed, unemployment rose, tax receipts shrivelled and the government's budget deficit went through the roof. Speculation that the UK might leave the euro, as it had left the European exchange rate mechanism in , meant investors demanded a high premium for holding UK government debt.
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Currency Devaluation. The Bottom Line. Key Takeaways There are 27 countries in the European Union, but 8 of them are not in the eurozone and therefore don't use the euro. The 8 countries choose to use their own currency as a way to maintain financial independence on certain key issues. Those issues include setting monetary policy, dealing with issues specific to each country, handling national debt, modulating inflation, and choosing to devalue the currency in certain circumstances.
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There was one referendum in , and then nothing more until In the meantime, the vast quantity of EU regulations and directives that had an effect on UK law were passed off as initiatives of the UK government, with no explanation of the role of the EU. This kept the Irish electorate on board as the EU increasingly apparently encroached on Irish sovereignty.
Yes there was a missed opportunity. It was the arrogant way in which Labour handled the Lisbon Treaty in Britain which helped to set the conditions for what followed less than a decade later. We were promised a referendum on the European Constitution but then denied it under the pretence that the Lisbon treaty was something different.
Had we decided to leave then, it would have been a lot less painful than now. Search for:. Stuart Smedley December 3rd, A missed opportunity? Revisiting the euro referendum that never was from a historical perspective 2 comments 12 shares Estimated reading time: 10 minutes. Data have been filtered to adults aged 18 and over in Great Britain in order to reflect those of voting age. Percentages may not total due to rounding. In , the question used was altered to ask the extent to which respondents agreed or disagreed that the euro will lead to various outcomes.
Strictly speaking though, data is not directly comparable to that shown for previous years. This post represents the views of the author and not those of the Brexit blog, nor LSE. Share this: Click to share on WhatsApp Opens in new window. About the author Stuart Smedley.
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