Leading economists urge UK to join euro

Fifteen leading economists have written to the Financial Times endorsing Britain's membership in the euro.

Our membership of the EU has made our country more prosperous...joining the euro would safeguard those gains

Fifteen leading UK economists

The letter says that "our membership of the EU has made our country more prosperous .. joining the euro would safeguard those gains."

Among those signing are Professor Richard Portes and Lord Currie of the London Business School, Professor Chris Pissarides of the London School of Economics, and Professor Peter Spencer of the University of London.

The move come as business leaders are gearing up for a pro-euro campaign after the General Election. Among those who are believed to be willing to speak out are Niall Fitzgerald, head of Unilever, Vodafone's Chris Gent, Michael Bishop, the head of BMI (formerly British Midland) and Nick Scheele, head of Ford Europe.

However, another group of euro-sceptical economists, including Professor Patrick Minford and Dr Walter Eltis, have written to the Daily Telegraph warning that Labour's five economic tests - which Labour says are the preconditions which must be met before calling a referendum on the issue - must not be fiddled.

"So far, Gordon Brown has not shown that he intends the tests to form the basis of an economic decision rather than help justify what the Prime MInister has already decided," they wrote.

The future of the euro

Meanwhile, a leading international economist who was a key advisor to former US President Clinton says that the euro is bound to strengthen as the US economy slows down.

Wim Duisenberg: ill-advised remarks

Professor Jeffrey Frankel, who was a member of the US Council of Economic Advisors, told a meeting in London that it might take some time before markets responded to the fact that the US economy was slowing down, and US interest rates were now lower than those in Germany.

And he revealed that the Clinton administration had stood ready to intervene again to boost the value of the euro - as the currency dropped this week to a six-month low.

In October, concerted efforts by the world's central banks stopped the euro's slide after it reached a record low of $0.84 - a 30% fall against the dollar since it was launched in l999.

Eurozone success

But Mr Frankel told BBC News Online that comments by the European Central Bank President Wim Duisenberg - who said later that there would be no more interventions to boost the euro - had undermined efforts at collective action.

Professor Frankel argued that critics of the ECB were being inconsistent in calling both for more transparency and for the central bank to speak with one voice - but that it did need to establish its credibility with the markets.

And he said that the euro had done well to establish itself as the world's second largest international currency so quickly.

Euro launch went well

He said that the creation of the eurozone, contrary to the expectation of many American economists, had gone smoothly, and that there was a positive effect on trade and finance within the 12 countries of the single currency.

But he warned that it would be sometime before there was full economic integration - and there remained a risk that a big economic crisis could tear the eurozone apart.

UK membership would boost currency

Professor Frankel said that the eurozone would be strengthened by UK membership, which would mean adding London, Europe's leading financial centre, to the currency zone.

And he argued that complete convergence was not necessary before joining a currency zone, as countries converge more quickly once they are using the same currency.

His research into monetary unions between a wide range of countries in the 20th century had shown that in the long run, a currency union could add 20% to per capita living standards and triple trade flows between countries.

But he accepted that Europe was not entirely an "optimal currency area". In particular, there was little labour mobility compared to the US, so that people in Italy did not move to jobs in Ireland, despite high unemployment.

And there was no mechanism for transferring income from rich to poor regions which could dampen regional recessions.

Professor Frankel was speaking at a meeting organised by the Centre for Economic Policy Research.