For the past 10 years I’ve been undecided as to whether Britain should join the European single currency, the Euro.
At first I was leaning towards the Euro, thinking that a level playing field of prices across Europe would encourage competition, making prices more transparent across a larger market, and therefore bring down prices in general.
Then, for a period, I felt that being constrained by a single interest rate for such a large and diverse economy would be harmful and having the flexibility of our own national currencies would assist us in adapting to any challenges we face.
However, since the start of the credit crisis and as the pound falls against a basket of currencies, I’m now leaning back towards the Euro. I’ve realised that governments (particularly our current one!) are too often tempted to print money to inflate their way out of a debt crisis, thus punishing the thrifty and rewarding the reckless.
I think that stability should be the most desirable attribute of a currency. It allows good businesses to concentrate on what they do best, rather than having to worry about the constantly fluctuating value of their imports / exports / savings. It allows people to plan knowing that they can buy a fixed number of goods with their income, and that they can set aside enough for retirement.
So the decision between the Euro and the pound, it would seem, boils down to a simple choice: Stability versus Flexibility.
As Britain and our European neighbours deal with the recession, it’ll be interesting to see which performs best. Countries such as Ireland, Spain and Greece may prefer lower interest rates than the Euro affords them, but if they perform relatively better than Britain does in the medium term, it would suggest stability is more important than flexibility.