The United Kingdom turned out to be a good European by not joining the euro zone. In the 1990s, when a few of us argued strongly that our country was not cut out to be in the euro zone, keen advocates of European unity tried to write us off as skeptics. They said it would be only a matter of time before the British people asked to join.
Instead, the doubts and fears we had about the euro unfortunately turned out to be true, reinforcing our sense that we needed a more independent status than other countries as Europe tried to unify.
If we had been in the currency zone during and after the 2007-8 banking crisis, I suspect that the euro would have broken apart by now. It is difficult to think that the euro zone could have withstood the pressures from the large banks here that were overextended, and that our own government bailed out. If we no longer had our own currency, there also would have been no devaluation to help us remain competitive, and the result would have been fewer exports and fewer jobs.
It is worth remembering that our membership in the Exchange Rate Mechanism, the forerunner of the euro, was the largest factor in breaking that system apart 20 years ago. Why would the euro have been different?
Our politicians had sufficient self-knowledge to realize that our country was not prepared to make all the sacrifices of self-determination necessary to share a single currency with our neighbors. We also saw that our economy was not sufficiently in line with those of Germany and France to make sharing a currency feasible.
The founding fathers of the euro knew that countries had to bring their economies together closely for the currency project to succeed. Initially, they demanded convergence of currency rates and interest rates. They set maximum levels for state debts and deficits, and for inflation. This wisdom was overruled by governments, however, in a mad dash to get as many countries as possible into the currency zone. Some, like Italy and Greece, started with too much debt. Some, like Portugal and Greece, added too much debt. Some, like Spain and Ireland, let banks become overextended, requiring huge sums to bail them out.
What should be done to limit the damage stemming from this scheme? Those countries that wish to stay in the euro zone and have a realistic chance of doing so must demonstrate much more ability to curb their deficits so they can finance themselves at market rates. They need to show they can make themselves more competitive without a devaluation.
If the euro countries decide they want to integrate more, our government should negotiate a new relationship with their emerging country (call it Euroland). If they want to govern themselves as one state — to provide central controls over taxing, spending and borrowing — that would be a different deal from the grouping of countries we joined in 1972 to create the European Common Market. Most people here have never wanted much more than trade and friendship with our neighbors in what is now the European Union. Among the large majority here, there is little appetite for more common government.
Many of us in Parliament recognize the realities of the euro crisis, and are urging the government to outline a new relationship with Europe based on trade and friendship. We should not wish to stand in the way of a more integrated euro zone if that is what the members wish, as long as they understand our need to have different arrangements. We negotiated the right not to join the euro, just as we had negotiated not to join the European Union’s common borders policy, its social policy, and elements of its criminal justice regime. We have always opposed common taxation and any common defense policy.
Our government need not apologize or disguise the simple fact that most of our voters want to live in an independent, democratic United Kingdom. I am sure American voters would not want to share a currency with Mexico and Canada, if it meant major economic decisions being made by a Union of the Americas over the heads of the president and Congress. That is how we feel about the euro.
Saving the whole euro area is altogether a more difficult task. It will require statesmanship and compromise of high order. The richer parts of the union — Germany, the Netherlands, Austria and Luxembourg — will have to pay more to the poorer areas that are struggling with large debts and deficits. The poorer countries will have to take more austerity medicine to curb their borrowing. A way must be found to correct the large imbalances in trade and competitiveness. It will not be an easy sell to voters.
Somehow growth has to be restarted and more jobs generated. The largest question is whether there is political will to do it.
John Redwood is a Conservative member of the British Parliament.