Thursday, June 19, 2003

More On the Euro Test

Brad Delong has three posts about the euro-no decision ( here , here , and here ). This obviously qualifies the topic as news of the week - although it was hardly breaking news, since we all expected it.

Brad is surely right in suggesting that since the principal objections to joining now - the greater correlation of British with American than European business cycles, and the greater vulnerability of Britain to interest rate shocks - aren't going to disappear any time soon this is more like a diplomatic never phrased as a 'not now'. Indeed, if any of the Treasury economists have been giving thought to how the eurozone will ever be able to collectively drag a deflation-mired Germany out of the mud, they probably realize that a 'not just now' should be all it needs.

I am much more at a loss to understand the thinking of such a venerable collection of economists as David Begg, Olivier Blanchard, Diane Coyle, Barry Eichengreen, Jeffrey Frankel, Francesco Giavazzi, Richard Portes, Paul Seabright, Alan Winters, Anthony Venables, and Charles Wyplosz, who are apparently suugestion that the UK has more to lose by staying out than by going in. This sounds more like moral pressure than clear reasoning to me.

Finally there is Michael Prowse of the Financial Times making the argument that it makes sense for Britain to enter the euro zone if and only if the European Union is committed to a long-term program to create a real United States of Europe: only if European political integration is going to proceed much farther will Europe become an optimal currency area, and the euro make sense. As Brad says: "It's an interesting argument. It may well be a correct one", indeed it is one I have been using continuously from the start of this blog. But we are oh sooooooo far away from this

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