VERBATIM REPORT OF SPEECH BY LARRY ELLIOTT, 
Economics Editor, The Guardian
TO THE FIFTH CONGRESS FOR DEMOCRACY, 2 February 2001

PREPARING FOR A REFERENDUM

Thank you for inviting me, I am happy to be here. It is a strange thing on The Guardian, when you say you are going to talk to the Congress for Democracy, they say "What are you going to talk to them for? You should be here with all the wonderful liberal people who support the single currency."

I want to dovetail with what Simon has been saying by putting the Left's case for being anti-euro, because there is this lie that goes around that attempts to polarise the debate by saying that only people on the Right are opposed to monetary union and that people on the Left are virtually all in favour of it. I would like to put this debate into some kind of context. Traditionally and for a long time there was deep scepticism on the Left about monetary union. It ran all the way through the 1970s, when there was a long, very historic strand of euroscepticism. In fact, right until 1983 Labour was committed to leaving the European Union, and things only changed in about the late 1980s. It was the time when Jacques Delors came to speak at the TUC and it prompted the response from Ron Toddy who was then head of the T&GWU that "there is only one game in town and it's in a town called Brussels".

I think what happened was that the Left lost its confidence and thought that the way to oppose Mrs Thatcher was to be pro-monetary union, pro-European Union in all aspects. If Mrs Thatcher was against something it must be good to be in favour of it. I thought that was a pretty facile argument then and I think it is a pretty facile argument now. Let me try and give you the Left's arguments against monetary union. Simon has given a very eloquent description of why people in business are against monetary union. Let me give you five or six reasons why I think people on the Left should be against monetary union.

The first one goes to the heart of the Labour movement, which is the case for jobs. It seems quite obvious to me as an economist that a one-size-fits-all economic policy is going to be destructive of both jobs and prosperity. We do not need to look very far back into history to see a time when such a policy was very destructive of jobs and prosperity in this country.

Ten years ago, when Britain was in the ERM, we locked our exchange rate to the Deutschemark at a time when the German economy was booming and our economy was deep in recession. The consequence was that unemployment doubled from about 1.5 million to 3 million, there were record numbers of people thrown out of their homes, and record numbers of businesses went bankrupt. When I hear people from the pro-monetary union lobby, the big businessmen who support monetary union, saying that we must join the euro, it tempts me to say "Well, what happened to your business between 1990 and 1992? How many jobs did you shed? What happened to your profits in that period?" And then there is a deafening silence, because what happened was that it was disastrous for those businesses, for British Airways, for Northern Foods, for Unilever. All those companies saw their profits slashed and they laid off large numbers of people. So that is the first, and probably the most telling reason why the Left should be against monetary union.

The second reason is that having a flexible exchange rate is merely a tool of economic policy, it is a way of adjusting your economy to changes in economic circumstances. If you fix your exchange rate you do get stability but you do not actually avoid the need for adjustment in some form or another. Simon talked about the US. There really are only three forms of adjustment left to you if you cannot use your exchange rate. The first is labour mobility - really not possible in a Europe made up of so many different languages, so many different cultures, so many different traditions. You can move quite easily from San Francisco to New York, but how effectively or easily could someone from Manchester move to Munich who could not speak German? It is really not very realistic. The second way is to have a big increase in the European budget and to move resources from one part of the Union to the other - again, not particularly feasible unless we are prepared to accept a centralised tax system. The third way and probably the only way - and this is something which the trade union movement needs to take on board - is for workers in a depressed region to say "We will take a pay cut and make ourselves more competitive and price ourselves back into jobs". You don't hear very many trade unionists saying that they are prepared to cut the wages of their workers by 10% or 20% to price themselves back into labour. As a result of all that, if you do not have any of those mechanisms, the adjustment is through higher unemployment and depression and that is what we have found time and time again throughout history.

There are two big fundamental economic reasons why the Left should be opposed to monetary union. That is not to say that there are not some economic benefits from monetary union. It does make prices more transparent, it does make it less expensive for some businesses to transact, it lowers transaction costs. But frankly, these may be reasons for supporting monetary union, but they really are reasons which benefit a small number of multinational corporations. They are reasons for supporting monetary union but not necessarily very good left wing reasons. Nor do I actually think that the argument that the Europe we are creating should be made safe for multinational corporations is particularly a good right wing or free market reason for monetary union either. If you take the classic Adam Smith laissez-faire argument, that was all about small businesses rooted in their community, none of whom dominated the market. Big business has this tendency towards oligopoly and monopoly which in the end is bad for consumers, so both from the Left and from the Right I would say that the argument that what we are doing here is making Europe one big single market where multinational corporations can do pretty much as they will is not a particularly good right wing or left wing argument.

I think that the people who push that argument are really living in some sort of prehistoric world. They always talk about how the people who oppose it are dinosaurs who look to the past, but actually those people who support monetary union really base their philosophy on old arguments. There is a bit of Cold War paranoia from the 1950s which lies behind the monetary union argument. Then from the 1960s there is a bit of "big is beautiful", we need these great big economies of scale. We do not believe now that the "big is beautiful" argument works for housing or planning but we seem to think it works for economics. In the 1970s there were the anti-inflation fears lumped into the mix, but we have moved into an era where inflation is no longer the problem it was. Then in the 1980s the final ingredient was the envy and jealousy of how well the German economy was doing. Forgive me for saying so, but the German economy has not been doing very well. So we have this very backward-looking creation which is now ten years old and starting to creak apart at the seams.

The fourth reason from the Left is that the European Central Bank is profoundly undemocratic and it has a built-in deflationary bias. These again seem to me to be two very good reasons why progressive people should treat this new institution with a great deal of suspicion.

The Left in Britain is traditionally opposed to arbitrary uses of power, and is traditionally opposed to the idea that power should be used unaccountably. If you look at the way in which the European Central Bank is set up, it is profoundly undemocratic. We do not have any say over who is appointed to the Council, the minutes of the meetings are kept secret for sixteen years, there is lip-service paid towards accountability to the European Parliament. Written into the Maastricht Treaty is the provision that it is illegitimate for a national government to lobby on behalf of its own people or even to attempt to lobby on behalf of its own people. It is absolutely forbidden in the Maastricht Treaty for governments to try to influence ECB policy in any way and the ECB's over-riding policy aim is to keep inflation below 2%. That is its objective: not to keep inflation at 2%, or as with the Bank of England to keep it at 2.5% with a balance of risk on either side, but to keep it below 2%. The result is it has a deflationary bias. It has to. All its emphasis is on keeping inflation below 2%, so while the Federal Reserve is merrily cutting interest rates the ECB is still worried about inflation. This is going to cost jobs.

Last two points: This is really more than economics. I think we all know that. The government has this fig leaf that it is about passing five economic tests. In the end it is a political decision. Monetary union will not work without political union. I think that is pretty obvious to anybody who has any understanding of the way history has worked: every monetary union until now has either collapsed or led to fully-fledged political union. Those of us who oppose monetary union are accused of having a hidden agenda, that actually what we are really about is pulling Britain out of the European Union. What we do not really hear is that the other side has a hidden agenda too, which is that actually monetary union is just a stepping stone towards political union. They know that four or five years down the road, once they have salami sliced monetary union into the equation, they will have another salami slice which will be that this will not work properly without fiscal union and eventually fiscal union will not work properly without fully-fledged political union. My feeling is that most people in Britain - most ordinary people, most workers, most small businessmen - oppose that.

The argument that the man in Whitehall knows best, or the man in Frankfurt knows best, or the man in Brussels knows best just will not wash for me. I find this incredibly arrogant, the idea that there are people out there, the intellectual elite, the Guardian leader writers, the Hugo Youngs of this world, who know what is best for people. I find that totally unacceptable and I think from the Left we should think it is unacceptable. The whole history of the Left has been to get more people enfranchised, to spread the vote, to get people closer to power and this seems to me to be sucking power away from people.

That brings me to the final point which is probably way off my own area of speciality, which is that actually patriotism is not the exclusive prerogative of the Right. There are people on the Left who are patriotic too.

George Orwell once famously said that Britain was unique in its intellectuals, who were the only ones in Europe who actually loathed their own country, and I think there is some truth in that. There is still a sense that the intellectual elite in Britain loathe their own country and their clinching argument when they say that we must join European Monetary Union is "because it's European". We should join it because it is European: it must be much better than anything we have to offer.

In answer to that I would say that there are things on the other side of the balance that really count. One is that historically, at least for the last five centuries, Britain has opposed the centralisation of power in Europe. It has been very suspicious of those countries which have desired to have hegemony in Europe.

Secondly, there is a great tradition, particularly on the Left, of dissent, suspicion of over-mighty power and a desire to be left alone to do pretty much as we please. We do not like the idea that people should be telling us what to do. This strand of thinking was crucial to the rise of the Left and to most of the social and fiscal movements of the past century and a half.

I think there is a really deep fundamental level of pride in the British traditions of tolerance, moderation, democracy and the rule of law. It is thought to be very politically incorrect to say that many of the countries which make up the European Union do not have a particularly long record in some of these areas. It may not be very nice to say that quite a lot of them have had quite recent memories of quite the contrary, of totalitarianism, dictatorship, intolerance, fascism, and being able to impose from the centre a top-down solution to every problem.

To sum up, I do not think monetary union works. It is inflexible and deflationary. It favours the interest of big business over individuals and small businessmen. It is a stepping stone to fully-fledged political union, which will require to all intents and purposes Britain to be given the status of a glorified county council. There are people on the Left as well as the Right who will fight to their dying breath to prevent this happening and I am proud to be among them.

- END -