22 August 2008

Not Joining The Euro Has Cost Us Billions.

Centre-right Euro-sceptics love to go on about how......
Gordon Brown sold our Gold at a low price (he actually swapped it for Euro currency that has vastly appreciated and as Gold is priced in the plummeting dollar we have lost very little).

What they won't mention is that if the UK had joined the Euro currency zone from the start we could have had 1.5-2% lower interest rates and joined at an exchange rate of around 1.50EUR to the POUND instead of the current 1.25EUR.

That is a DEVALUATION in our currency of nearly 20%!!! - something that has brought down previous administrations - this is worth much more than the piffling losses from any gold sale.

While the strength of the Euro would have damaged exports that go to non-EU countries (which is less than half of our total exports), the lower interest rates would have more than compensated for this (as demonstrated by the extraordinary growth in Ireland) and long-term inflation would have been much easier to control with lower interest rates and a strengthening Euro currency to back it up.

As well as the Tories and their right-wing media friends being responsible for increasing the number of people on welfare, increasing our national debt, being responsible for the credit crunch (by irresponsible credit deregulation in the 1980s), socially oppressing our people (with inaccurate and depressing stories of 'broken Britain' thereby hardening people's attitudes to rehabilitation, abortion, sexuality etc and making it impossible for politicians to be brave), tripling inequality and doubling crime, they are also clearly totally completely inept about our future economic security.

And we want these Tories back in power? We must be mad if we throw away the progress that Labour has made because of the disenchantment with its speed of delivery - every Labour government from Attlee to Wilson has disappointed the Left but without these governments there would be less liberal attitudes to minorities, no NHS and more inequality and crime.

New Labour has actually delivered more - record improvements in education, health, transport and overall quality of life.

Despite appearences to the contrary this Labour government have delivered the biggest redistribution of wealth by the tax system to the poorest of ANY government.

Not enough in a world where incomes at the top have gone out of control - but don't let the Tories fool you into thinking that doing nothing is a better option.


  1. "as demonstrated by the extraordinary growth in Ireland"

    Woah! Not you as well!

    The right-wingers are forever yapping on about Ireland, saying it's only grown because of 12.5% corporation tax. Which is patent bollocks: Ireland is a small country, so as long as it gets more tax from offshoring than it loses from domestic companies, it does well - i.e. by becoming a tax haven.

    Simple truth, Ireland got massive EU subsidies, corp tax receipts by being a tax haven and the only thing that DID grow extraordinarily was HOUSE PRICES (as a result of low or negative real interest rates, see also Spain), now that the bubble has burts they are well and truly f***ed, even more so than we are.

    Serve 'em right, frankly.

  2. Ireland has been transformed from virtually a third world country to an economy with one of the highest standards of living per capita in Europe, one of the best educational systems pumping out high calibre graduates and a fantastic new technology base supplanting agriculture - hardly just 'a rise in house prices'. I reckon that the UK recession will be harder and longer than Ireland suffers.

  3. anotherplanet23/8/08 12:20 pm


    Wow. It's hard to believe New Labour have been in power since 1997! Is there any contradiction in blaming the Tories for the deregulation of credit (which I presume Gordon was powerless to address) and the desire for lower interest rates?

    Do you have comparative figures on the redistribution of wealth and how this ties in with the huge disparities in income that have been such a feature of the last decade?

  4. AP: I think it was always going to be difficult for Labour to overturn the credit changes.

    In the short term, growth would have been lower - with the hostility Labour face from the press (that the Tories do not have to contend with) it makes it so much harder for them to govern bravely. Reigning in credit would have been a real reason to claim 'no more boom and bust' like GB did but he wasn't brave enough to do it.

    Likewise with the Euro - the Tories made it very difficult for Labour to join. The housing market fuelled by 100%+ variable rate mortgages made our economy too fragile and interest rate sensitive to adjust to a EU wide interest rate. We needed to push fixed rate high deposit mortgages right from the start - legislation would have been needed to reign in credit and Labour were too scared of the tabloids.

    The Tory leadership under Major were (surprisingly Cameron advocated it back in 1994) warming towards the Euro before the ERM debacle - it was the asymetric shock from German unification that scuppered their chances.

    Like the founding of the EEC, the Euro will benefit from not having the UK economy hanging round its neck, but eventually we will have to join, the longer we put it off, the higher the price we will have to pay to join (once again just like our weak position when we begged to join the EEC and were refused).

  5. anotherplanet23/8/08 1:13 pm

    Being 'too scared of the tabloids' doesn't strike me as much of an excuse.

    Thanks for the figures, but dividing into quinitles masks the huge acceleration of incomes experienced by the top 5%, particularly the top 1% - which New Labour hae famously been 'relaxed' about. It would also be interesting to see comparisons with Attlee/Wilson, or even MacMillan/Heath era distributions.

    I suppose how you view NL's tenure depends on whether you're satisfied with a nominally centre-left government being not-quite-as-bad as the Tories, or whether you might hope that the mandate given in 1997 would have encouraged a less lily-livered approach.

    Still, at least your blog is not-quite-as-bad as Iain Dale's!

  6. AP: It would be good to have comparisons with Heath/Macmillan and Attlee/Wilson. It is not always easy to find this data. I suspect that the movement for all these periods would be small. The high water mark for equality in this country is 1979 - it was Thatcher that took a real lurch away from the post-war consensus that had incremently reduced inequality from the 1940s onwards.

    You have to realise how powerful the Tory press are in this country. To understand the sheer size of the accomodation that New Labour had with the hostile right-wing tabloids. After 18 years of Tory government - Labour were scared they would never be in power again. Labour decided to ride the Murdoch/Rothermere tiger - doing everything to accomodate them in exchange for a less hostile press - the tabloids only ever at best tolerated a right-leaning Labour government while attacking it as soon as any sign of electoral weakness was present. If Labour are ever to truly become the 'natural party of government' they have to take on the press and encourage real public service broadcasting. This weak government that has weakened the BBC both organisationally and financially has put back the possibility this will ever happen. I expect the Cameron Tories (who give all the impressions behind their nice rhetoric of being even more right wing than Thatcher) to finish the job and banish impartial broadcasting forever - turning us into the right-wing heaven of the US broadcast scene. These things do matter - look at Belusconi in Italy.

  7. anotherplanet23/8/08 2:52 pm

    There was a point post-1997 when NL could really have been at their best by being bolder. Instead of swinging the pendulum back, riding the Murdoch-Rothermere tiger has exhausted such possibilities, leaving us at the mercy of the Tories, who can simply top up the watered down neoliberalsm of the Blairites.

    Standing up to the right might well have ended in tears, but placating them has simply decimated the party and, as you admit, prepared the ground (tuition fees, healthcare co-payments, welfare cuts, neocon foreign policy, etc.) for the Tories' coup de grace.

  8. If you're going to pick a debt-backed currency which is controlled by a private central bank at all, then you want one where you or the situation in your own country might have the slightest chance of influencing its policy. It just so happens that this is less true of the European Central Bank than it is of the Bank of England. That is, if you were so mad that you'd pick (or stick with) a debt-backed fiat currency at all.

    Also, you know unsurprisingly little about the gold market. Gold isn't priced like oil, with everyone using USD under threat of invasion if you even think about selling in EUR; gold is priced in whatever currency you could possibly want to buy it with (except, perhaps, ZWD) in. The London Bullion Market Association prices its gold fixings in GBP. Additionally, the price of gold has gone up in EUR too, and similar levels of increase in prices have not been seen in other commodities. The effect of this is that gold would have been a better investment due to it not suffering the same decrease in value than your precious EUR has endured.

    The devaluation of GBP of 20% (actually it's 17%; percentage increases or decreases are given as a percentage of the old or original value, unless you want to mislead or exaggerate) against EUR cannot be used as a measure of the devaluation of GBP in general, as this does not take into account the devaluation of EUR itself. I do not argue that GBP is devaluing less than EUR is, it's devaluing 17% more than whatever percentage EUR is devaluing by.

    Indeed, if one looks at GBP and USD now, the time when GBP was falling steadily with USD (price held at around 0.49 as GBP) is clearly over, GBP is falling faster than USD (price today is at 0.54).

    Onward to the matter of Gordo "selling" the gold. This was just international bankers converting their paper wealth into physical wealth at a time when they thought (or knew) that the price of gold was at its lowest. Looking at which currency Gordo got in return for the gold, it isn't hard to work out which organisation these international bankers hailed from (or are otherwise involved with): the European Central Bank.

  9. You have to realise how powerful the Tory press are in this country. To understand the sheer size of the accomodation that New Labour had with the hostile right-wing tabloids

    This is balls. The reason why Labour is a right wing party is because its last two leaders - Brown and Blair - are right wing politicians. The left and the unions were happy to along with it. You made your compact with the devil, Faust. It's no good complaining about it now!

  10. stephen: the funny thing is, you see membership of the Labour party as an endorsement of everything the leadership do, whereas I see membership as one of the few ways we can have a say - admitted it is very limited say, but a say nevertheless. The Tories are a party with virtually zero internal democracy and when in power will reduce our liberty. They will erode the FOA, destroy reliable statistics gathering, continue to ignore local democracy, be more in the pocket of big money, squeeze the poorest with authoritarian dictats and inequality will explode once their policies take effect. Cameron on his £150k yacht holiday - his real holiday - paid for by his mega rich father in law, shows the real Cameron. He will have no empathy with the poor - just as Thatcher didn't. And you lot will be responsible for inflicting another Tory government on us.

  11. stephen: the funny thing is, you see membership of the Labour party as an endorsement of everything the leadership do, whereas I see membership as one of the few ways we can have a say - admitted it is very limited say, but a say nevertheless

    Sorry, Neil, what precisely has this 'say' modeified the policies of the party? Labour has become significantly more centralised and command driven since 1994. I think you might be better in leaving the party and engaging in direct action politics. Protest and civil disobedience is the way forward, not sucking up to the PLP.

  12. Neil,

    Sorry to burst your bubble, but according to this article Brown changed only 40% of the money he recieved into Euros. Another 40% he converted into your much reviled US dollars and another 20% became Japanese Yen.

    Far from committing to the euro it looks like he was playing the currency markets like an amateur speculator and spreading his risk.

    Given this one wonders if he did indeed gain anything. Especially when the mid-1999 gold price was approximately $260 per oz and now sits at over $800

  13. stephen- "I think you might be better in leaving the party and engaging in direct action politics"

    Why not campaign within the party AND on single issues?

  14. RM: If he had kept the Gold, its nominal value would have almost trebled (from when it was sold in 17 auctions between 2000 and 2002) - so the timing was in retrospect unfortunately inauspicious, but remember Gold actually costs money to keep (to keep secure) and is not much good to the economy sitting in vaults, whereas currency can be invested and reap yearly dividends. The value of the Euro has almost doubled against the dollar since 2000 (from $0.85 to $1.57) so the loss is not so great.

    The article you cite was wrong about it being a political move towards the Euro (for one thing France and Germany didn't follow Brown's lead until much later), and it is also wrong about 7% of our reserves in Gold being a problem - Ireland has enjoyed a booming economy with only 1.7% gold reserves.

  15. A couple of points:

    1) Gold does not actually have to be in ones physical possession to be owned. Personally, I own a (very small) quantity of gold. Barring one Krugerrand in the gunsafe none of it lies within a thousand miles of kwaRemittance. I pay nothing for storage and security. If I choose to sell it, neither I nor the buyer will be responsible for transporting it to some new location. At most I will stick a certificate in the post and the dealer will send another certificate to its new owner.

    3) Even if governments hold physical gold in their own vaults at some expense. Currencies invested on the markets also incur costs. Someone has to keep an eye on those investments and adjust the portfolio accordingly. This also costs money. Rather a lot of money in fact, as the Guardian likes to point out whenever the bonuses of City traders are discussed.

    3)I think you are confusing the value of a currency with the value of commodities. By convention gold is valued in dollars, but the inherent value people apply to gold has little to do with the value of the dollar. Indeed a part of the recent rise in the gold price came about because the dollar had lost value against other currencies including the euro.

    As to whether the decision was political or not, I guess that's a matter of personal opinion. But political or not, I still contend that the decision was not a good one in simple investment terms. SA's shaky telecommunications infrastructure permitting I hope to post something on this tonight.

  16. Okay,

    SAs shaky telecommunications system still defies human comprehension. But by my calcs, if Gordon Brown had not sold off 415 tons of gold between 2000 and 2001, Britain would be 2.5 billion quid better off.

    Indeed the decision to purchase euros, dollars and yen actually brought about a negative change in the value of those assets of about 18%.

    Until I can actually post again I can't put the calculations in the public domain for checking, but feel free to try and e-mail me and I'll send you the spreadsheet I used. For some reason SA's e-mail system is still working, even if the interweb isn't.


  17. Why not campaign within the party AND on single issues?

    I think I answered that in my previous post, as your belonging to the party represents objective support of its policies. If you had a means influencing policy then I would concede that there might be an argument for staying. But as it is you are simply giving the party money to devise more policies that are anathema to you. This is not a defensible position!

  18. If there is a challenge to Brown - being a member will give me a big say over the next PM - that would be worth £3 a month.

  19. Joining the EU has cost us billions.

    In your opinion Neil, has Labour introduced any legislation over the last eleven years that has made the British economy less competitive or less flexible in the face of global competition?

    Personally, Labour's eoconomic miracle has been a mirage, creeping legislation, no fundamental reform of the welfare state and massive increases in public sector employment have left Britain in a parlous state. It will take someone of Thatchers stature to unravel this mess. It will be long and painful.

    Labour's experiment in economic management has failec as they do not understand the basics.