Peter Jackson column

Jun 12 2003 By Peter Jackson, The Journal

Some time ago I wrote to express my surprise at the informal pro-euro alliance of some Tories and industrialists and trades unionists.

I said that both sides thought euro membership would lead to greater integration, but, whereas the Tories and businessmen must believe the Europe being created would be deregulatory and pro-capitalist, their trades union allies must believe the opposite.

I concluded that they couldn't both be right and that, in my opinion, it was the trades unionists that probably had the measure of the EU.

Now, following Gordon Brown's performance on Monday and the publication of the results of the Treasury's conclusion on the five economic tests, I'm not so sure.

As The Journal so rightly pointed out on Tuesday, the North-East's price for joining the euro could be lower wages. Not something traditionally regarded as a good thing by trades unionists.

Signing up to the euro would undoubtedly bring advantages, but there remains, as has often been pointed out, a fundamental problem - the European Central Bank has to manage monetary policy for the economies of different countries all across the continent.

It is argued that a one-size fits all interest rate cannot be right for, for instance Germany which is in recession, and Ireland where the economy shows signs of overheating. Germany desperately needs lower interest rates - precisely the opposite of what Ireland needs.

I noted earlier this week that one fund manager is warning that Germany could be forced out of the euro project within the next five years unless things improve.

This is the problem which could face us. With one interest rate ruling from the Isle of Iona to the Ionian Islands, we could be in the position of either a Germany or an Ireland. Loss of interest rate control would deny the Government (OK, the Bank of England then) use of one of the most powerful economic tools in the box to cope with the ups and downs of the economic cycle.

This is why Gordon Brown's second economic test - the one which requires flexibility in the UK economy - is regarded as so important. Put crudely, if we can't cut interest rates to boost the economy during economic downturns, can industry, especially in regions such as this, easily reduce its wage bills?

Those in favour of euro membership often point to the US as an example of a large economy and federation thriving with one centrally set interest rate. Well, yes it does, but it's also an economy in which it's easy to hire and fire and keep the lid on wages.

I CONGRATULATE (between gritted teeth) Liverpool on winning the Capital of Culture bid. I am surprised the judges thought their bid enjoyed more widespread support than ours.

Coming from Lancashire, I can tell you that Liverpool is regarded with, at best, indifference, by the rest of the North-West, whereas our bid had genuine region-wide support.

But our task now is to redouble our efforts to make Newcastle- Gateshead one of Europe's finest cities - and make it embarrassingly obvious the judges got it wrong.