The influential businessman Peter Sutherland believes it is time to put the case for joining the Euro back on the agenda for policy discussion. When the case was looked into historically and, with the publication of the Treasury’s Report on the Five Tests, effectively terminated, not joining the Euro was the more obvious choice. One wouldn’t be wrong in saying that the case is now much weaker perhaps decisively so. A number of critical factors have changed. As it is ever popular to quote Keynes, it is worth bearing in mind the reproof he directed at someone who criticised the seeming inconstancy of his expressed views: “When the facts change I change my mind. What do you do?” At the time when the case for the Euro was last rehearsed, British citizens could be excused for following the classic Americans saying “If it isn’t broken, don’t fix it”.

This attitude made perfect sense and was based on a long period of increasing prosperity and moderate inflation. It was mirrored in a long run of predominantly negative answers to the question, as administered by polling organizations, “if there were a referendum on joining the Euro would you answer Yes or No to the question ‘Should Britain join the Euro?’ It cannot be said this American saying holds true currently. Attitudes towards joining the Euro seem likely to change as a result.

One of the ingredients in the long run of prosperity was without a doubt the high value of the exchange rate of the pound against the Euro (and other currencies). Once again, things have changed. Where the exchange rate was arguably too high before, now it is debatably too low. It was tricky to recommend locking into the Euro at the rates which were common in the late ’90s through to 2007 and it would be prudent to await some appreciation before locking in now - but that some fall in the exchange rate can be welcomed is hardly beyond dispute. Still, while we are talking about the exchange rate, it is not just quibbles about whether the rate is right or not at a particular time that should be important. Instead of that, the lesson that should well be learnt is that the behavior of the exchange rate in recent times gives little ground for optimism about its role as a stabilizer when Britain’s exchange rate is floating. In fact there have been a number of studies which seem to show that the exchange rate may, for many countries, be just as much a source of shocks as a stabilizer of them.