UK was right not to join flawed euro,
admits Jacques Delors
Times - 17 Jan 2004
By Charles Bremner in Paris and Greg Hurst

Jacques Delors, the former President of the European Commission, fuelled the controversy over the euro yesterday by admitting that Britain was justified in opting out of the single currency because its launch was flawed.

In a remarkably frank interview with The Times, the one-time bogeyman of Eurosceptics also predicted that Britain would stay out for years, not least because Gordon Brown was so “passionate about his contempt for Europe”.

In another startling admission, the veteran French leftwinger said that the European Union was in a “state of latent crisis” because of weak leadership. He blamed member state leaders, including President Chirac of France, for putting national interests before the common good.

M Delors, 78, also spoke with unexpected admiration of Baroness Thatcher, his old nemesis. He said that she was a “figure who counts” in British and European history, and the way her Conservative colleagues dumped her was an example of the “atrocious” manner in which male politicians treat female colleagues.

But his most surprising comments were on the euro. He lamented that EU leaders had failed to heed his warning that monetary union must be matched with close co-ordination of economic policies, and argued that the euro was consequently less attractive than it could have been.

“Since we have not succeeded in maximising the economic advantages of the euro, one can understand the British . . . saying, ‘Things are just fine as they are. Staying out of the euro hasn’t stopped us prospering’,” he said.

Denis MacShane, the Minister for Europe, said M Delors’ comments, vindicated the Government’s “sensible decision . . . to make economic conditions rather than ideology the central issue as far as the euro is concerned”.

But Michael Ancram, the Shadow Foreign Secretary, said: “This is an extraordinary admission by M Delors. If a champion of European integration says that the euro hasn’t worked, it shows how right Britain has been to stay out, doubly so if a more harmonised economic policy is proposed as the way forward. ”

M Delors led the Commission for ten years, pushing through both the single market and the 1991 Maastricht treaty on monetary union, and has just published his memoirs. He spoke warmly of Britain, though he called its aversion to Europe “a great mystery of history”. But he was sharply critical of his own country. He deplored the opposition in France to the EU’s imminent enlargement and President Chirac’s attempts to lay down the law to the former Soviet bloc states because of their pro-American leanings.

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British workers close productivity gap with US and surge ahead of Germany
FT - 17 Feb 2004
By Anna Fifield

The UK's workers are more productive than their German counterparts and have started to close the gap on rivals in the US, it emerged yesterday after revised 2002 figures showed that UK productivity was higher than had been previously thought.

British productivity in 2002 was only 12.8 per cent lower than the average for the rest of the Group of Seven industrialised nations, markedly better than the 16.5 per cent gap that was estimated six months ago, according to revised figures issued by the Office for National Statistics.

The revised figure is a sharp improvement on the 15.8 per cent difference recorded in 2001 and will cheer Gordon Brown, the chancellor, who has placed a high priority on narrowing the productivity gap but whose efforts had apparently met with limited success.

The gain was particularly marked against the US, where the gap shrank between the gross domestic product per worker in the two countries. Economists believe productivity is determined by the interplay of a complex set of factors such as skills, research and development, and the economic cycle.

The initial estimates showed the US had extended its margin from 28.9 per cent in 2001 to 30.8 per cent the following year but the revisions showed that in fact it had narrowed to 27.4 per cent. The revisions also showed that Britain was stealing a march on Germany. The first set of comparisons put German output 4.6 per cent ahead but the revisions show that Britain actually had a 1.2 per cent advantage.

The ONS reissued its productivity comparisons yesterday in the wake of new international price data issued by the Organisation for Economic Co-operation and Development.

The outlook could be even rosier, because the figures cover a period when the growth in British productivity was weak. Since 1980 productivity growth has averaged 2 per cent a year, but over the past two years it has been 1.4 per cent.

George Buckley, an economist at Deutsche Bank, forecast productivity growth would hit 2.5 per cent by the middle of the year. "The rise in growth we are expected to see this year is not expected to be met by the equivalent rise in employment, so you would expect productivity growth to pick up," he said.

Mr Brown has labelled productivity growth a yardstick for economic performance and a Treasury spokesman said yesterday that efforts to tackle the productivity gap were starting to pay off. "Our continued macro-economic stability and micro-economic reforms are contributing to an improvement in performance," the Treasury said.

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Joining euro 'would wreak havoc on housing'
Telegraph - 3 Mar 2003
UK 'four times as sensitive to fluctuations in interest rates'

By David Litterick

BRITAIN'S adoption of the single currency would wreak havoc on the housing market, according to an independent think-tank in a study that has intensified the war of words between those for and against the euro.

The report, by Oxford Economic Forecasting (OEF), suggests that the UK is four times as sensitive to interest rate changes because of the differences in the structure of the UK housing and mortgage markets.

The research, commissioned by the "No" campaign, looks at the effect of monetary policy on the housing market - both inside and outside the eurozone - and concludes that the UK economy would be far more vulnerable inside the euro to shocks in consumer confidence affecting the housing market.

It cites the much higher level of variable rate mortgage borrowing in the UK compared with the eurozone, where fixed-rate borrowing is the norm. The report claims that, if the UK had joined the euro at the outset, two years of above-trend growth would have pushed house prices 30pc higher than they are now, sent the current account deficit ballooning by an extra pounds 50 billion and caused inflation of 4pc. That would then give way to a technical recession - two successive quarters of negative growth - leading to further cycles of boom and bust, which the Chancellor is aiming to eradicate.

OEF forecasts that a one percentage point rise in interest rates for two years would slash gross domestic product by 2pc if the UK were within the euro, compared with a fall of just 1/2 pc for the eurozone as a whole. George Eustace, director of the "No" campaign, said: "The British housing market represents a major obstacle to UK membership of the euro. Higher interest rate sensitivity in Britain is not just a short-term issue regarding the economic cycle. It reflects fundamental structural differences which simply won't change in the foreseeable future. If we give up the ability to set our own interest rates, we will have no way of reacting to changes in the property market."

Britain in Europe described the research as "flying in the face of common sense". Philippe Legrain, the lobby group's chief economist, said: "According to the two most authoritative economic studies of the issue by the Bank of England and the IMF, the British economy is no more sensitive to interest changes than euro-zone economies.

"Nor is the current state of the housing market an obstacle. The Bank expects house prices to stabilise over the next two years. This would allow UK interest rates to fall to euro levels - leading to cheaper mortgages and borrowing for all Britons without sparking inflation."

© Telegraph

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