When Gordon Brown Saved Us From the Euro 10 Years Ago
Dave Ramsden, the chief economic adviser to the Treasury, looked back on the Labour government’s decision in June 2003 to stay out of the euro, at a meeting last month of the Mile End Group at Queen Mary, University of London, to mark the 10th anniversary.
I have only just caught up with his lecture, posted here. It adds some important texture to the historical record. It confirms my reading of that episode: that it was not an artificial or casual operation by Gordon Brown to block Tony Blair. It was a thorough effort that came to a dispassionate conclusion: that adopting the euro was not in the British economic interest. Ramsden said:
The Assessment was the Treasury’s work, but the question is often posed whether we came under political pressure in producing it. Ed Balls was very engaged at every stage, but I never felt under pressure, and Gordon Brown was very careful to keep at one remove throughout.
The most interesting part of Ramsden’s talk, I thought, was his making clear that the assessment, originally intended to be delivered in the Budget speech on 9 April 2003, came to a firmly negative conclusion even before the main discussion between Blair and Brown about it. Ramsden confirms that the consultation of the Cabinet, sometimes regarded as one of the most extensive exercises in traditional Cabinet government, was largely presentational – both in itself and in that the discussion was essentially about how to present a decision that had already been taken.
This is the relevant part of Ramsden’s lecture:
Gus O’Donnell, as Permanent Secretary, signed off on the Treasury’s Assessment, which I submitted to the Chancellor on 31 March.
Our conclusion was that the Five Tests had not been met and a clear and unambiguous case for joining EMU had not been made.
I presented our findings to the PM and Chancellor … on Tuesday 1 April and then returned to the Treasury, where we worked on keeping open the 9 April option. For this we needed finalised Assessment language and movement came at a Heywood-Balls meeting in the Treasury on the evening of Thursday 3 April. James Bowler, Ed’s Private Secretary, and I joined them intermittently. At 1am I headed down to join Ian and Tom at the printers off the Walworth Road for an “all-nighter”, to transcribe the agreed changes into the printers proof of the document. The new version was delivered to various addresses at 7.30am.
As Friday went on any remaining hopes of a 9 April launch receded. Objectively this was obvious as Iraq and other issues well above our pay grade intervened. But in our delivery-focused world it came as a shock. The Chancellor told us formally on the Saturday morning that we would have to delay. All the work of the EMU team came to a sudden stop and a few tears were shed. But the 2003 Budget, minus most but not all of the EMU related material still had to be delivered. The 2,000 sets of studies were locked up in a large cage at the printers.
The EMU team had a collective breather over Easter. On return we made further changes and updates. During May the Prime Minister and Chancellor agreed the language of the Assessment. A process was agreed and endorsed by Cabinet for the period up to the Parliamentary announcement, set for Monday 9 June. To try and quell talk of divisions on process there was a joint No 10/No 11 press statement on 16 May setting out a united front [pictured].
First the studies and then the assessment were shared with members of the Cabinet bilaterally in the second half of May. (Some Cabinet members had been sighted earlier on the related policy issues through meetings of the Economic Affairs Committee, chaired by the Chancellor.) There was a meeting of the full Cabinet to agree the policy in the week before the 9 June announcement.
It wasn’t so much that the decision had been taken by the Treasury before the politicians got involved but that the decision had been taken, in effect, by the absence of strong economic arguments for joining. There was never any prospect of the case for adopting the euro being strong enough to make the necessary referendum remotely winnable.
Despite its conclusion, however, the Treasury assessment was, as it turned out, far too pro-euro. Ramsden was honest about what it got wrong:
A … limitation in our Assessment was the role of fiscal policy and whether EMU implied a fiscal union. The fiscal policy framework in the euro area was and, to a large extent, still is materially different from that of the US which we had studied. In the euro area fiscal policy is largely set at the national level with minimal fiscal transfers between countries. By contrast in the US the federal government can coordinate fiscal transfers between regions.
The European Treaty included specific provisions – the so-called “no bail out” conditions – that underlined that national Governments were fully responsible for ensuring that their own fiscal positions were sustainable, backed up by the provisions of the Stability and Growth Pact.
There were a range of views about whether this would be sustainable. Some academics submitted evidence to us that inter-regional fiscal transfers were essential to the long term viability of a monetary union.
By contrast our Assessment reached the strong conclusion that a federal fiscal policy was neither necessary nor desirable in EMU, which was much too sanguine. It underestimated the speed with which Governments could lose access to the bond markets … and hence underestimated the need for last-resort financing.
It wasn’t, of course, Gordon Brown (or Ed Balls) who saved us from adopting the euro. It was John Major, who negotiated the opt-out in the Maastricht Treaty, and who forced Labour to match his promise that any recommendation to join would be put to the people in a referendum.Tagged in: cabinet government, contemporary history, ed balls, euro, euroscepticism, Gordon Brown, tony blair
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