Report from the AGM, 11 May 2002
Brendan Donnelly opened the debate by saying that, in the national interest, Britain should join the euro as soon as possible. That did not mean that Britain could join the euro tomorrow. It did mean, however, that the government and other pro-euro forces should work more actively to create the political and economic circumstances under which Britain could enter the single currency. Pro-euro campaigners tended to be less energetic than their Eurosceptic counterparts, often believing that history was on their side and that the Prime Minister could be relied upon to take us into the euro. Neither of these assumptions was necessarily correct.
According to the speaker, Labour had clearly been divided on the euro in recent years. Tony Blair remains in favour, largely for political reasons, but Gordon Brown is much more cautious. The recent Budget points away from euro membership. In the Red Book which accompanies the Budget, it is clear that the government intends to stick to its own version of the stability pact rather than the EU version. More generally, the five tests the government has given itself for assessing possible British membership of the euro make for strange economic reading. Because they are primarily based on predictions about the future, they can never lead to an unambiguous economic judgement. It would be a mistake to imagine that a simple statement by the Treasury that its economic tests have been met will still all economic controversy about British membership of the euro.
Brendan Donnelly was not yet convinced that, even if the Prime Minister and Chancellor agree to hold a referendum next year, it would definitely be won. Those who wanted Britain to join the euro in the near future were understandably eager to derive encouragement from recent opinion polls. But these opinion polls only suggested a slow improvement in British public attitudes towards the euro. Politicians, and in particular the present Labour government, are viewed with great suspicion by the electorate. Referendums in Denmark and Ireland had shown that the public will not necessarily take guidance on European matters from the political establishment. The government should not rush heedlessly into a referendum, the losing of which would be catastrophic for Britain’s position in Europe.
Brendan Donnelly raised two further possible difficulties which could cut across the possibility of a referendum next year, the exchange rate and Iraq. On the question of the exchange-rate, it is generally agreed that the UK needs a lower rate in order to be able to join. It would not be politically possible to fight a referendum campaign on the basis that a lower rate might subsequently be negotiable. To agree a lower rate would require the approval of all the existing euro-zone members, and any one of them could derail the strategy after, or even during the referendum, by opposing the suggestion that sterling should be devalued against the euro. If Britain wishes to enter the euro at a lower rate than now, sterling would need to be close to the final, desired exchange rate before the referendum can take place.
Similarly, American military action in Iraq could create difficulties for a euro referendum, Brendan Donnelly expected such military action in the course of this year or next. If Britain was alone among the European powers in supporting this action, particularly through deployment of ground troops, then any chance of winning a euro referendum next year would be gone. It would be ironically appropriate if the referendum were to be delayed because of British support for American military intervention in Iraq. Joining the euro was not simply an economic question. It was also a question of political and national identity. To have opted for America rather than Europe would be the death knell for any hope of this government to take Britain into the euro.
Brendan Donnelly concluded by distinguishing between two questions, the first whether there would be a referendum next year, and the second whether there should be a referendum next year. There was a temptation to claim that anybody who wanted Britain to join the euro must logically favour a referendum next year, but this was not necessarily correct. A premature referendum that was lost was infinitely worse for the country than a later referendum that was won. Brendan Donnelly thought there probably would not be a referendum next year. He remained to be convinced, through substantially better polling evidence that there should be. The only justification for calling a referendum was the prospect of getting Britain into the euro. It should not be called to resolve the internal difficulties of one or other political party, or simply as a theoretical exercise in popular democracy.
In response to a question about the exchange rate, the speaker that there were economic arguments for the pound’s joining the euro at its present rate. If this were the government’s view, it would need urgently to start making its case on this matter. The general present assumption of exporters and commentators is that Britain will join at a lower rate.