It does not take a PhD in economics to understand the essential issue in the euro debate:
Should ultimate responsibility for the management of the British economy stay in Westminster or be transferred to Frankfurt and Brussels?
The economic choice in joining the euro or staying out is even clearer. If Britain keeps the pound, we must accept currency movements. If we join the euro, swings in inflation, unemployment and wages will potentially increase.
Anatole Kaletsky, The Times, June 12, 2003

Patriotism is the last refuge of the scoundrel said Dr Johnson. As a rootless cosmopolitan, whose family has held five passports in 50 years, I fully agree; which is why I have always been reluctant to bandy grandiloquent phrases about sovereignty, democracy and national independence while discussing the euro.

But Tony Blair and Gordon Brown have changed the terms of the debate. At Tuesday’s press conference, they declared that their top priority was now to persuade the British public of “the patriotic case for the euro”. If that is so, patriotism, sovereignty and democracy must become core arguments for everyone who wants to make a contribution to this great national debate.

In many ways, this is a welcome liberation. It will discredit, once and for all, the fiction Mr Blair has used to insulate himself from the euro controversy so far — the idea that euro membership is a technical economic issue, best left to Treasury experts and insulated from the cut and thrust of political emotions.

As a result of Mr Blair’s decision to present the euro in terms of “patriotism”, the British people might finally get genuinely involved in this debate. And once they do, the debate will swing even more decisively towards the anti-euro camp.

For not only is the debate now officially about patriotism, sovereignty and democracy. We also have an official government estimate of how much these qualities are worth. The Treasury has stated that the maximum possible economic benefit to Britain from joining the euro would be 0.25 per cent of GDP or £3 billion a year. When divided by Britain’s population of about 60 million, this is equivalent to £50 a year or £1 a week. Is this the price Mr Blair puts on Britain’s economic sovereignty and democratic accountability?

The euro lobby may cry foul about my use of the figures. They point out that the possible gains suggested by the Treasury studies are cumulative. Membership of the euro could add 0.25 per cent to Britain’s annual growth rate not just for one year, but for as many as 30 years.

It is perfectly true that the Treasury says this, but it also points out that the gain of 0.25 per cent annually is the maximum gain imaginable under the most favourable possible conditions. It is equally possible, in the Treasury’s judgment that the maximum gain from joining the euro could be as little as 0.02 per cent of GDP — equivalent to just 10p a week. And even such a tiny gain would be dependent on absolute certainty that the British economy had converged fully, that the exchange rate chosen was the right one, and that all the improvements in flexibility and all the reforms to the eurozone’s management systems suggested by Mr Brown had been put in place.

Economists could, of course, argue until the cows come home about the precise figures and all the assumptions the Treasury has made — for example, that Britain suffers no permanent costs from the abandonment of domestic economic management and the resulting volatility of prices and employment. What really matters, however, is the political impact of quantifying the euro’s economic effects.

It does not take a PhD in economics to understand the essential issue in the euro debate: Should ultimate responsibility for the management of the British economy stay in Westminster or be transferred to Frankfurt and Brussels? This is essentially the only question that has to be answered in the euro debate. The difficulty, of course, is that costs and benefits exist on both sides.

The political choice is really quite straightforward. If Britain keeps the pound, our Government is excluded from decisions on the euro and risks a broader loss of influence, at least according to Mr Blair. If Britain joins the euro, our Government loses control over the key levers of economic management; as a result, British politicians and officials can no longer be held to account for the way the economy performs.

The economic choice in joining the euro or staying out is even clearer. If Britain keeps the pound, we must accept currency movements. If we join the euro, swings in inflation, unemployment and wages will potentially increase.

Presented with the political choice, most people in Britain would undoubtedly vote to keep national sovereignty and democratic control, even if this meant losing some influence in Europe. Until this week, however, the europhiles were able to avoid inevitable defeat on the politics of the euro issue by focusing instead on the economic effects — either claiming enormous benefits from joining the euro or warning of cataclysmic economic damage if Britain stayed out.

Because of the Treasury assessment, the euro lobby has now lost this line of defence. It doesn’t matter how many pro-euro businessmen threaten to pull out of Britain or stop inward investment, if the British people say “no” or the Government keeps postponing a referendum. The Treasury’s range of figures take inward investment and currency exchange costs, and all the other economic effects of the euro, into account.

In doing this, they draw attention to the underlying economic truth that has all too often been lost in the euro debate. Exchange costs, inward investment and all the other supposed economic effects of joining the euro are not ends in themselves. They only benefit the economy if they increase economic growth. And the evidence — or even the theoretical conjectures — about how joining the euro might boost Britain’s growth rate suggests only tiny, almost invisible effects.

Where, then, does this leave Mr Blair’s campaign to persuade the British public of the “patriotic case for the euro”? The answer is back squarely in the realm of politics.

Mr Blair wants to engage the sceptics over what he sees as Britain’s political destiny to join the euro, and anyone who meets him is left in no doubt that he really is spoiling for this fight.

While he still insists rather mechanically, that the euro is essentially an economic issue, he no longer tries to hide behind the Treasury assessment. His personal definition of Britain’s “national economic interest” now stretches deep into the realms of diplomacy, geopolitics and historical destiny, which are completely out of bounds to Treasury bean-counters, with their cost-benefit analyses, flexibility agendas and convergence roadmaps.

This is a little-noticed, but enormously important, change in the Government’s policy. In 1997, when the “five tests” were invented, the Government’s position was that joining the euro would be a politically unpopular and painful decision that might be necessary for Britain because of the overwhelming economic benefits of the single currency. Now the relationship between politics and economics has been reversed. We must now join because of the “overwhelming political benefits” (a phrase Mr Blair now habitually uses in his speeches), provided membership does not entail significant economic costs. The purpose of the Treasury assessment is no longer to prove that Britain will gain economically from the euro. It is to make sure that the British economy is not wrecked by joining on the wrong terms or at the wrong time.

Mr Blair no longer even pretends that the positive case for joining will be made in the narrow financial terms defined by the five tests. Instead, he talks of the huge economic benefits for Britain of having more influence in Europe and of claiming its seats on the committee of eurozone finance ministers and the European Central Bank.

If that is the essence of the patriotic case he proposes to make for the euro, good luck to him. British voters will laugh him out of court.

People realise instinctively that control over economic policy is infinitely more important for national independence and democracy than membership of international institutions and ill-defined influence over shadowy committees and foreign powers. Almost all politics involves spending money. If the economy performs badly, defence, health, education all suffer and taxes have to rise.

A government which loses control over its economy eventually loses control over everything else. And politicians who cannot be held accountable for the performance of their national economy ultimately cannot be held accountable at all. This is why Mr Blair is right. The euro decision really is about democracy, accountability and patriotism. And British voters are most unlikely to sell these national prerogatives for 10p a week, £1 a week or any other price.