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The World at One's Nick Clarke reports
Test two: Flexibility
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Wednesday, 27 December, 2000, 18:21 GMT
Test two: Flexibility

The World at One examines the chancellor's second economic precondition for the UK joining the euro - flexibility.

"Countries will need even more flexibility to adjust to change and to unexpected economic events once their ability to vary interest rates and exchange rates has gone."

Gordon Brown's five economic tests
Can there be sustainable convergence between Britain and the Eurozone?
Is there sufficient flexibility to cope with economic change?
What will the effect be on UK investment?
What will be the impact on the City and the financial services sector?
Is it good for employment?
So said the Chancellor Gordon Brown about the consequences of joining the euro with its attendent single European interest rates.

So is British business sufficiently flexible to respond to economic shocks - for instance, in the event of an unexpectedly deep recession?

The majority of our experts believe that we're better placed than many of our potential partners.

Charles Goodhart, Professor of Business and Finance at the London School of Economics, believes it is primarily a problem for the Eurozone rather than the UK - due to Britain's more flexible labour market.

"It's a question of seeing how the euro area behaves when it's under greater pressure than it has been over the past couple of years," he says.

Ken Clarke
Ken Clarke: "The Continent is moving in the direction of more flexible economic structures"
Since some protective measures are automatically lost by joining a single currency - cutting interest rates to help industry, for instance - it becomes more important that companies and workforces can respond quickly to crises.

In one sense then, flexibility, means the ability to act quickly on investment and closures, finding skilled workers - and sacking them.

Inflexible European Union?

Eurosceptics believe that the wider rules of the European Union - let alone joining the euro - are already affecting Britain adversely.

They quote employment legislation, for instance the working time directive, claiming EU regulations create inflexibility.

But the former chancellor, Kenneth Clarke, thinks the argument is so vague as to be virtually meaningless - but that Britain is winning the argument anyway.

"One can discern quite clearly on the Continent they're moving in the direction of the more flexible economic structures that Anglo-Saxon capitalism has experienced for longer," he says.

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