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Will Hutton

Tuesday: Will Hutton

Will Hutton
Will Hutton answers your questions

Will Hutton says: The euro cannot be allowed to fail. The currency regime that would succeed it would mean the re-emergence of the mark as the Continent's dominant currency and rule by the German Bundesbank, which is even less accountable to Europe's public than the European Central Bank.

Currency volatility between member states would grow. Economic sovereignty would pass completely to the capital markets and individual nation states would become yet more powerless before the forces of globalisation, de facto colonies of what Henry Kissinger calls the 'American empire'.

A darker, less generous and less liberal Europe would emerge. This is a disastrous prospect.

The paradox is that part of the euro's purpose is to re-empower the European electorate by equipping the EU with a currency strong enough to challenge the rule of the tiny group of foreign-exchange dealers who, in a floating exchange-rate regime, can settle the fate of national economic policies.

But that is not how it feels, with the euro so weak. Europeans have poured tens of billions of dollars into the US to get a share of the action, supporting the dollar and depressing the euro.

Europe, by contrast, has seemed economically uncharismatic. But solving that dilemma by creating a two-speed Europe with more top-down, remote governance cannot be the answer.

This is why Blair and Brown deserve a more careful hearing. Both want the euro and the EU to succeed, and both want Britain inside. But they know the poisons of euro-scepticism well.

To keep the European integration process going, it has to be more tightly connected to national communities and respect the jurisdiction of nation states.

Thus, Blair will propose this week in Warsaw that the European Council reassert itself as the governing institution in Europe and that the European Parliament should have an upper house peopled entirely by elected MPs deputed from national parliaments.

And he will argue that deeper information sharing rather than harmonisation is how the EU should pursue integration, building on Brown's successful riposte to the proposal to establish an EU withholding tax on income from financial securities. The EU should advance only where the case is proven. Above all, it must keep everyone together.

This is a more careful, softly-softly approach to building Europe than Fabius and Fischer may want. It means that the euro will have to wait until the dollar falls before it strengthens, which will come, but that is the price of constructing a single currency without first building the culture, institutions and political base to support it more directly.

This debate has now become central not just to the immediate future of Europe, but to British politics. If Fabius and Fischer get their way, it will make success in a British euro referendum even more difficult.

Brown, in particular, will argue for deferral beyond the next parliament. Why offer Hague electoral ammunition for a cause that will not win and which, in any case, is designed on the wrong principles?

Building Europe was always going to be hard, but pro-Europeans are going to have to be much subtler and acute in their understanding of their fellow Europeans' prejudices if they are to succeed. Blair and Brown, characterised as reluctant Europeans too timid to make the case, may be more effective champions of Europe than they know.

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BBC News Online reporter John Walton put some of your questions to Will Hutton, Economics Editor at The Guardian. Here are the transcribed highlights.

John Walton

Will, for those who didn't see the programme you are strong supporter of the euro, in your opinion what does a single currency have to offer the UK?

Will Hutton:

More investment, more inward investment, more jobs in manufacturing, a decisive blow against rip-off Britain - car prices in Britain as we know are one-third to one-half - even higher than prices in mainland Europe, we will see genuine price transparency across the Continent. They will have to charge the same prices in Britain as in France and Germany. It means all those things.

I know that one interest rate for a whole continent is going to cause difficulties from time to time and I openly recognise that but I think the benefits over the medium and long term more than compensate for that problem. I also recognise that there will be occasions when the European Central Bank and the European Commission will suggest to the British government that they should change their policy.

My argument is that although sceptics say that is a loss of sovereignty, I say we have lost it already. Saying that the British government can control the exchange rate is rather like King Canute trying to stop the tide from coming in. The world's foreign exchange speculators, the great movements in capital now dictate the level of the pound.

It is a nonsense to pretend otherwise and these foreign exchange speculators and the great investment banks - they carry in their head an idea of what is the appropriate interest rate and what is the appropriate level of taxation and what is the appropriate level of expenditure for Britain to have. The choice is - do you want to have more autonomy but within the constraints set by the rest of Europe or do you want no autonomy at all because those constraints will be set by foreign exchange speculators. So that is why I am for the euro.

I am also for the euro for something else that is more important again. It is certainly a risk to go in. But it is a fantastic risk staying out.


So do you see it as a leap of faith joining the single currency?

Will Hutton:

No it is not a leap of faith at all. It is working already. It will work in the future. This is the way the 21st century is going to develop. There is going to be a currency bloc in Europe, a currency bloc in the States and a currency emerging in Asia around the Yen.

Your choice as a smaller currency is which of those currency blocs are you going to join up to. I don't want to join up with the Yen - for obvious reasons and I don't believe we should join up with the dollar. So the smaller currencies are just like corks bobbing around on the sea between these huge other currencies and you can't dictate the capital flows that flow around as a result. In this new environment the currencies that stand alone are going to be much more volatile - going up hugely and down hugely much more than they used to and that is going to cost jobs.


Warrick Kertz comments that if euro interest rates are right for say the UK and Germany, they may be disastrous for other countries with different economies such as Portugal and Greece. In these circumstances and if the UK was part of the euro, will taxpayers here be expected to pay money to help support the other economies of such countries as Portugal and Greece?

Will Hutton:

Absolutely not. If the interest rate was inappropriate for Greece or Portugal they would have to take the appropriate measures to sort out their economies either by raising taxes or lowering public expenditure or maybe even increasing public expenditure and lowering taxes. You can say that they will have to take the responsibility for their actions themselves - that is absolutely clear under the rules of the treaty and under the whole principle of subsidiarity under which the euro operates. So that is not a worry and it is not a worry that British taxpayers might in the future have to "subsidise" other taxpayers in the rest Europe. If their economies are mismanaged that is their problem and they have to sort it out - that is the rules of the game.


An e-mail from Shanhini Khan asks: Do you agree that by joining the euro the UK would lose a lot of its own economic independence and do you think this would inevitably see some kind of political union with the rest of Europe?

Will Hutton:

My answer to this is that she is living in a dream world if you think we have got it. What economic independence in terms of sovereignty over our exchange rate does she think that we have at the moment? The British Government didn't want the pound to go up so high because it has cost a lot of jobs in manufacturing - Corus the steel maker, BMW pulling out of Longbridge, Vauxhall closing their Luton plant - all the warnings - the executive of Ford Europe saying that if we don't go into the euro it will mean the wind-down, in the medium term, of Ford's operations in Britain and the chief executive of Unilever making the same point.

The British Government don't want them to say these things - they would love them to keep the jobs here and the reason they can't keep the jobs here is because the pound is too high. We don't have any sovereignty already so it is an illusion. These questions are like King Canute and the tide. We gain sovereignty by actually entering the euro at an exchange rate which will be more sustainable over time.


So you see political union as being an inevitable part of that economic union?

Will Hutton:

That is not what I said. I was talking about the first element of that. Now political sovereignty - I think again that we have just got to not imagine that we live in 1750 or 1850. This is the 21st century that we are living in. If you want to solve a problem like global warming, the idea that one country can do it by itself is just nonsensical. If you think that one country can solve the fact that the fish stocks in the North Sea are actually now critically low and we need to stop fishing the North Sea - if you think one country can sort that out by actually fishing less - you are living in a dream world - the fish don't respect national frontiers.

The Danes, the Swedes, the Norwegians, the Dutch, the Belgians and the French and the Spanish and the British have to sit around a table and sort out the quotas of fishing in the North Sea. The best way to do that is within a standing political structure - now you can call that loss of sovereignty if you like but it is gaining, in my world, about gaining control. It is complete fatuous illusion that this country could never go to war by itself again. It didn't even in the Second World War go to war only for a few months. You have allies, you have people who you pool sovereignty with - that is the nature of the beast.


There is also issues of democracy and accountability. Christopher Kennedy: How can the European Bank be more accountable to the European public? He is making the point that nobody can elect or deselect the people who are running the bank. How do you see those problems of accountability that exist at the moment?

Will Hutton:

Two things: first we live in a second best world. Does this questioner think that Chase Manhattan and Deutsche Bank, The Saudi Government, the Sony Corporation are accountable when they sell pounds and drive the exchange rate down or buy pounds and drive it up to extraordinary levels. What accountability do the decision-makers in the foreign exchange markets have to the British electorate? The answer is absolutely zero. They don't give a monkeys!

What you are doing is that you are saying - I live in a world in which I have got no control over my exchange rate - none, zero, it has gone, fled, went 25 years ago and what I am trying to do is to regain some control. Now I am not arguing that the European Central Bank is a perfect mechanism but the people who sit on it are all governors of central banks around Europe - they have all been appointed by elected governments - they are responsible to those elected governments through the democratic procedures in those individual governments - that is one area of accountability.

The second area of accountability is the European Central Bank has to answer vigorous questioning in the European Parliament and it has to answer vigorous questions to the European Council of Finance Ministers. So this is a degree of accountability that faceless foreign speculators running out of the Cayman Islands, Monaco or Lichenstein or the Corporate Treasurer of the top 100 multi-nationals in the world - they don't have that accountability. This is the people of Europe clumsily, I agree, imperfectly, I agree, regaining a sovereignty and establishing an accountability that is completely lost. We have a very right-wing, sceptical press who peddle nonesense on this and themselves live in a 19th century world which has disappeared. I think was a pity that some of these arguments that we made weren't broadcast in the programme last Sunday.

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