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Ed Balls – Right about the Euro

Ed Balls may be wrong about immigration but he’s right about the euro, up to a point. The credit normally goers to Gordon Brown for keeping Britain out of the euro, but, as his adviser at the time, Balls deserves some credit too. Describing himself as “a pro-European of the hard-headed rather than romantic variety,” he argues:

We were right to draw up the five economic tests which determined that Britain should not join the euro. A romantic pro-European might have believed that the “political” case for joining the euro might trump the economic pitfalls. Even the FT and the Economist told Tony Blair that he should overrule the Treasury’s assessment of the five tests. But to a hard-headed pro-European, the economic risks were too great to be politically sustained and would have set back the pro-European cause for a generation. The stark differences between our economy and the rest in housing, finance and trade were too much for Britain to bear with no interest rate or exchange rate flexibility. History has proved this view to be right. The UK’s aggressive and interventionist response to the economic crisis has stopped recession turning into depression. The rest of Europe, led by the European Central Bank, was too slow to act, too timid and remains stuck in a deflationary trap.

The reason he’s only right up to a point is that he tells only part of the story.  The rest of what became the eurozone fudged the convergence tests and thereby avoided making an economic case at the start. And now the project is doomed, according to a survey of 25 leading economists in the Sunday Telegraph. Those who expect the euro not to survive in its current form outnumber those who do by twelve to eight, and even those who expect it to survive do so “more on political than economic considerations”, and in one case, at the expense of a default by one of its member states. Former Bank of England wise man, Professor Danny Blanchflower said it was:

hard to see the euro surviving in its current form… The political implications are likely to be far reaching – Germans are opposed to paying for others and may well quit. Citizens in countries like Ireland are paying more per capita for the package. Greece may well not be able to avert a default.

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