by Dave On Fire

Created on: April 02, 2007   Last Updated: April 19, 2007

The flag wavers of the United Kingdom Independence Party were waving flags at me in town today. They were trying to convince us that leaving the E.U. was the only way for Britain to preserve its independence. It was the funniest thing I'd heard in quite some time.

Don't get me wrong: I too have many criticisms of the E.U. and the shadowy Commission that rules it, and I would love to see a more independent U.K. But to present a choice between an independent U.K. and a European U.K is just absurd. When you think of a foreign power that essentially tells Britain what to do, is it really anywhere in Europe?

As George Orwell recognised sixty years ago, the choice is between a European U.K. and an American U.K. And the more I think about it, the more I suspect that Britain stayed out of the euro not because of macroeconomics, but simply because the Americans told us to.

The macroeconomic case against the euro is that without its own currency, Britain would not be able to set its own interest rates. This is not an abstract or trivial concern; interest rates are one of the most important factors in regulating both inflation and unemployment within a country.

Currently interest rates in Britain are nearly twice what they are in the Eurozone, and unless one of the two central banks is being ludicrously incompetent there are good reasons for both those rates. Arbitrarily forcing Britain's rate down or the Eurozone's rates down would do neither one any favours.

So goes the argument. However, harmonising currencies has an upside too. It makes it far easier for businesses in one country to do business in the other, without having to protect themselves from fluctuating exchange rates. This increased mobility of capital creates more trade and thus more business, and this perhaps makes up for the loss of macroeconomic control.

The governments of France, Germany, the Netherlands, Belgium, Luxembourg, Spain, Portugal, Austria, Ireland, Greece, Finland and, more recently, Slovenia certainly thought so, yet the government of the UK did not. We have to ask what seperates us from these thirteen.

"The English Channel" does not answer that question half as well as you might at think. In fact, the Eurozone is by far the most important source of our imports and tourists, and the most important destination of our exports and more tourists. The straits of Dover are the busiest shipping lane in the world for a reason, and the UK is very much a part of the European market.

Not wanting to shoot themselves

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