Everyone’s attention will be on the Budget on 17 March. The financial markets, however, will focus on an event a week later; when the European Commission and the European Monetary Institute publish their reports on who should join the first wave of the euro.
Interest rates and the value of our currency may depend more on the recommendations of these institutions than the fiscal stance enunciated by Gordon Brown a week earlier.
The economic truth is that there ought to be three waves to make up the euro: a first wave beginning 1 January 1999, consisting of hard-core countries whose exchange rates against the Deutschmark have not changed in ten years.
This would mean a single currency based around France, Germany, Holland, Belgium and Luxembourg and Austria.
There should then be a second wave, joining a year or two later, of countries which have tried to meet the Maastricht convergence criteria but where there are doubts these criteria can continue to be met. This would let in Italy, Portugal, Spain and Finland.
Then there should be a third wave, later still, that would bring in the UK once we had met the criteria and there had been a favourable referendum vote after the next General Election. This may be the best economic introduction of a strong and stable currency onto the world’s financial markets.
But the political will of second-wave countries to join up and follow Maastricht criteria will be overwhelming, guaranteeing the maximum number of countries join in the first wave. The result is a soft, rather than a hard, currency.
There is a view that countries such as Germany prefer a hard currency to follow the Deutschmark – not shared by German business and exporters, who want currency flexibility.
The betting must be that the recommendations will be for more, not fewer, countries to join in the first wave, that the currency will be soft not hard, and the value of the pound may climb even higher.
It may be a long day’s journey into night for our exporters before the UK reaches the ‘promised land’ of a single currency.
Stuart Bell is the Labour MP for Middlesbrough.
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