As I’ve posted over at NI Crunchtalk – A 16% fall in sterling in less than a year, a 25% fall in Barclays shares in a single hour last Friday, the scene is set for a new mega- banking insurance scheme bailout. Inside the turmoil of events come faint stirrings for the UK to join the euro which NI business will want to keep a close eye on. To the esteemed Observer columnist Will Hutton, Britain is on the edge - just behind Ireland.
The joke across the Irish sea is that the only difference between Ireland and Iceland is one letter and six months . After what happened to the world’s banks last week – and to Barclays Bank in particular, whose share price collapsed 25% in an hour on Friday – it’s clear that Britain is at risk of being next in line . There is a budget deficit next year of £118bn, which may have to increase again – with another big Obama-style fiscal stimulus – if the recession deepens. My view is that the financial markets will accept actual spending only if Britain pre-announces that after financial stabilisation has worked, it intends to join the euro – otherwise we will find ourselves in the same position as Iceland.
More intellectual underpinning for a move to the euro has come from economists and business leaders led by Peter Sutherland, former Attorney General of Ireland, former WTO chief and EU commissioner and now chairman of BP and Goldman Sachs.
Sutherland and co-authors of a book of essays presented at the London School of Economics recently foresee a time when an independent sterling is a weak and peripheral currency compared to the reserve currencies of the dollar and euro. I thought we were pretty much there already; perhaps these gurus are only being polite.
The strongly Euro-sceptic Times grandly dissents from this.
In adopting the euro, these countries have given up the ability to use the exchange rate to offset an economic shock, and are subject to a single interest rate that may not be suitable for their particular stage of the business cycle. The main macroeconomic question for the UK is whether the benefit would justify that cost. It would not.
Political opinion is officially closed. Last month, Downing St denied any shift in current euro policy. For the Conservatives, William Hague goes so far as to break the old rule of politics never to say never.
But with world wide turbulence showing no sign of abating, who’s to know what will happen in even a few weeks time? The focus may shift from flexibility of response to seeking a broader, deeper shelter if forthcoming measures fail to deliver.
Former BBC journalist and manager in Belfast, Manchester and London, Editor Spolight; Political Editor BBC NI; Current Affairs Commissioning editor BBC Radio 4; Editor Political and Parliamentary Programmes, BBC Westminster; former London Editor Belfast Telegraph. Hon Senior Research Fellow, The Constitution Unit, Univ Coll. London