The Ostrich and the EMU: Policy Choices Facing the UK

Citation

Gönye, T. (1998), "The Ostrich and the EMU: Policy Choices Facing the UK", European Business Review, Vol. 98 No. 5, pp. 292-293. https://doi.org/10.1108/ebr.1998.98.5.292.3

The mention of the EMU has been described as the modern replacement for a sleeping draught. A recent survey has indicated resounding apathy towards the question and those that had a view, were firmly against it.

This book is a report of an independent panel chaired by Rupert Pennant‐Rea and discusses the implications of the alternatives of joining at the start, or at a later stage or not at all. The USA is often cited as an example of the benefits of monetary union; however, similarity between the USA and Europe is debatable.

Europe has an accumulation of 2,000 years of culture, language and national pride associated with their individual currencies, while the tendency to have been at war with one’s neighbours has ensured an equivalent hoard of enmity seething under the surface of civility. Releasing such a pressure cooker is precisely what occurred in the former Yugoslavia, where Marshall Tito had been sitting on the lid.

The secrecy behind which EU makes sweeping decisions, the most ridiculous of which have passed into modern folklore (the straight cucumber or the straight banana) and for which no one is accountable, offers increased opportunities for corruption and waste of our hard‐earned taxes. Another recent example concerns the allocation of funds under the Socrates scheme to universities in 1997. It took the European Commission a year to arrive at the allocation of around Ecu15,000 per university (about 5 per cent of the actual funds requested).

The Brussels gravy train to produce this calculation must have cost well over the Ecu25 million that was available for the grant, in addition to which, each institution would have spent well in excess of Ecu15,000 to produce their applications. So it cost twice as much (Ecu50 million) to allocate the grant as the grant itself (Ecu25 million). There is, however an uncanny relationship between the numbers: dividing the grant (Ecu25 million) by 1,600 (the number of institutions applying) gives 15,000, which is the grant that most of the institutions were awarded. This calculation could have been performed on the back of a used envelope in five minutes, without the need of applications in 15 different languages, in each colour of the rainbow, thus saving over Ecu50 million of public funds and over a year of uncertainty for thousands of people.

There will be severe effects on the value of Government Bonds and unemployment. The authors predict a rise of about 10 per cent in Government Bonds if it became known that Britain intended to be “in”, while the effects on employment are difficult to predict. They speculate that there would also be an increase in the value of stocks. On the basis that there is usually a positive but delayed link between bonds and stocks and that there will be a perceived increase in potential profits as the costs of currency fluctuations would be excluded, I would expect an increase in stock values. In my experience as an independent trader I would suggest that stock prices would rise considerably further than bonds, especially as new, increasing investments flow from US and maturing European sources into more tradable trans‐European stocks.

Whether the UK joins the EMU or not, it will be hugely affected by the existence of the European Monetary Union, so “behaving like an ostrich”, by ignoring the question and hoping it will go away (as people try to do with Income Tax Returns), the authors suggest, is not a viable option. It seems churlish to spoil a good story by introducing facts but an ostrich does not actually bury its head in the sand. Perhaps the misinterpretation was introduced by an E(M)U politician using ill‐fitting rose tinted glasses.

The presentation of the book is modern, the subject‐matter is enlivened by subtle humour and incisive candour, with a plentiful use of clear graphs and charts to illustrate the text; however, the absence of an index and a glossary of specialist terms makes the book less informative to the more casual enquirer than it otherwise could have been. Nonetheless, the volume adds to the debate surrounding the EU and monetary union and is well worth reading.