LONDON — Britain now receives more inward investment than any other country in the world. So says the Organization for Economic Cooperation and Development (OECD) based in Paris.
But wait a minute. How can that possibly be? Was not it asserted, at the highest levels in both Britain and other European governments, that unless Britain signed up to the euro currency it would lose inward investment disastrously? And was not this view supported by distinguished industrialists and top economists all round the world, including in Japan?
Those who believed so strongly a few years back that Britain had to join the euro zone went even further. Britain, they argued, would be dangerously excluded from key European economic decisions. It would lose out in the European Union growth stakes and the City of London would be bypassed as centers like Frankfurt, within the euro zone, grew in power. The pound was certain to collapse.
It was only a matter of time, they insisted, before Britain was marginalized and its roles as a gateway for investment and production for the great European market was destroyed. The same went, added the experts, for other European nations, such as Sweden and Denmark, who were unwise enough to stay outside.
Yet all these predictions have been proved wrong. Investment continues to pour into Britain at a faster rate than ever. The pound has stayed strong. British growth has more than matched the stagnant euro zone. Exports to the rest of Europe have expanded.
As for the City of London — it has never been so prosperous, booming as a center of both European and global finance, and proving every day that life outside the euro zone for a great financial center is better than life within it. Meanwhile Frankfurt, the vaunted rival magnet for finance and banking, has languished.
Clearly the great figures who pronounced so freely about Britain’s need to join up with the euro currency bloc must have been relying on flawed analysis and failure to take all the factors into account. And it is becoming easier all the time to see where they went wrong .
First, the wrong-footed experts assigned much too much weight to the harmonization of currency denominations, claiming that if Britain stuck to the pound, traders and investors would be impossibly handicapped and growth would slow down.
What they overlooked, and what economists often overlook, was the enormous pace of electronic innovation, which makes the translation of any currency into any other at the exchange rate of that split second a simple, button-pressing task. Carrying euros round the EU is convenient for tourists, but that is about the limit of it (and there is evidence that even tourists in reality quite enjoy slipping from one currency into another — it makes them feel more “abroad” and in an exciting foreign country, which is where most of them want to be).
For businesses it hardly matters nowadays at all what currency they trade in, or do their accounts in or invoice in.
Second, the enthusiasts for British membership of the euro zone forgot how inflexible a single monetary system, with a single interest rate, might prove for diverse economies moving in different cycles and responding to varied social, historical and political pressures. Outside the euro zone, Britain has been able to decide an interest rate that is crafted to fit particular British economic needs and this has given it immense extra vitality and strength.
By contrast France, Spain and Ireland have been stuck with rates dictated by the European Central Bank that are dangerously low and “bubble-inducing,” while Germany and Italy long for an even lower rate to give their faltering economies a needed shot in the arm.
Third, the experts who all yearned for a single currency bloc were caught in an intellectual trap that governed too much of 20th century thinking and that the 21st century is rapidly invalidating.
This is the idea that big blocs are best. Twentieth-century thinkers looked back to the great armies of the two world wars, to the giant corporations that grew out of the obvious benefits of mass production and standardization, and to the wonderful order and control that central direction could bring, which appeared to be essential to provide direction to both enterprises and whole societies.
Again they were all faulted by technological innovation. Blocs have been replaced by networks, and networks can operate with enormous efficiency and adapt with enormous speed to constantly changing conditions in the way that tightknit blocs can never do. This applies as much in international affairs as inside the corporation or any national institution.
The single euro-currency concept belongs, and always did belong, to the age of bloc thinking and to the era of belief in huge organizations that could crush opposition under their elephantine weight.
But such lumbering beats can no longer keep up with the lightening adjustments needed at every turn in the pattern and structure of capital flows, and with the pace of technological change.
That is why Britain has prospered mightily outside the euro, and why there is little sign of any rekindled enthusiasm to join. Life is better outside this particular prison that clever theoreticians devised, but of which they failed to see the unintended consequences.
Other European countries, both inside and outside the EU, have found the same thing, which is why some of Europe’s richest economies, such as Switzerland, Norway, Denmark and Sweden, along with Britain, are those that have stayed clear of the euro experiment. How wise they have all been!
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