The British Labour Party and monetary union

West European Politics

Volumn 23, Issue 1, 2000, Pages 1-25

  Gamble, Andrew ^a,b   Kelly, Gavin ^b,c  

^a UNIVERSITY OF SHEFFIELD   (United Kingdom)

^b Political Economy Research Centre   (United Kingdom)

^c IPPR   (United Kingdom)

Author keywords

[No Author keywords available]

Indexed keywords

ECONOMIC PLANNING; MONETARY UNION; POLITICAL ECONOMY;

UNITED KINGDOM;

EID: 0033999035     PISSN: 01402382     EISSN: None     Source Type: Journal    
DOI: 10.1080/01402380008425349     Document Type: Article

References (60)

1. HM Treasury, UK Membership of the Single Currency: An Assessment of the Five Economic Tests (London: Oct. 1997). The five economic tests are: (i) Are business cycles and economic structures compatible so that we and others could live comfortably with euro interest rates on a permanent basis? (ii) If problems emerge is there sufficient flexibility to deal with them? (iii) Would joining EMU create better conditions for firms making long-term decisions to invest in Britain? (iv) What impact would entry into EMU have on the competitive position of Britain's financial services industry, particularly the City's wholesale markets? (v) Will joining EMU promote higher growth, stability, and a lasting increase in jobs? See David Currie, The Pros and Cons of EMU (London: HM Treasury Oct. 1997).
2. HM Treasury, UK Membership of the Single Currency: An Assessment of the Five Economic Tests (London: Oct. 1997). The five economic tests are: (i) Are business cycles and economic structures compatible so that we and others could live comfortably with euro interest rates on a permanent basis? (ii) If problems emerge is there sufficient flexibility to deal with them? (iii) Would joining EMU create better conditions for firms making long-term decisions to invest in Britain? (iv) What impact would entry into EMU have on the competitive position of Britain's financial services industry, particularly the City's wholesale markets? (v) Will joining EMU promote higher growth, stability, and a lasting increase in jobs? See David Currie, The Pros and Cons of EMU (London: HM Treasury Oct. 1997).
3. See Andrew Gamble, 'The European Issue in British Polities', in D. Baker and D. Seawright (eds.) Britain For and Against Europe: British Politics and the Question of European Integration (Oxford: Clarendon Press 1998) pp.11-30.
4. The Labour Party, The New Hope for Britain (London 1983) p.33.
5. The Labour Party, Britain Will Win (London 1987) p.15.
6. The Labour Party, Meet the Challenge, Make the Change: A New Agenda for Britain (London 1989).
7. The Labour Party, New Labour Because Britain Deserves Better (London 1997) p.37.
8. This survey was carried out by David Baker, Andrew Gamble, Stephen Ludlam and David Seawright from Nov. 1995 to Feb. 1996. The survey questionnaire contained 59 questions on European integration; 33 per cent of Backbenchers responded, and 29 per cent of the Shadow Front Bench. Tests on the sample indicated that it was representative of the PLP in terms both of cohorts and ideological groupings. Full details of the survey are contained in David Baker and David Seawright (note 2).
9. This survey was carried out by David Baker, Katrina Bull, Andrew Gamble and David Seawright in June and July 1998. An analysis of the results can be found in 'MPs and Europe: Enthusiasm, Circumspection or Outright Scepticism' in J. Fisher, P. Cowley, D. Denver, A. Russell (eds.) British Elections and Parties Review Vol.9 (London: Frank Cass 1999).
10. For a general overview of the role of sterling see Susan Strange, Sterling and British Policy (Oxford: OUP 1971).
11. The main exception to this is usually said to be Margaret Thatcher, who was strongly committed to floating exchange rates, and argued fiercely with her Chancellors - Geoffrey Howe, Nigel Lawson and John Major - and with the Bank of England about the desirability of Britain joining the ERM. In the end her hand was forced and Britain did join the ERM in Oct. 1990, just before her downfall. The policy of the Conservatives towards the ERM is recounted in Philip Stephens, Politics and the Pound (London: Macmillan 1996). But it should be recognised that even Thatcher's position itself had changed, for she had been a strong critic of Labour's failure to join the ERM in 1978.
12. By the time the gold standard was suspended in 1931 Labour was no longer in office, but the financial crisis which led to the suspension was blamed on the Labour Party.
13. 1976 was a depreciation rather than a formal devaluation.
14. The intellectual cleavages within the left on the issue of free trade were illustrated by some of the exchanges on the Macmillan Committee which was set up in 1930 in response to the slump. In response to Keynes' protectionist arguments in favour of tariffs Hugh Dalton (future Labour Chancellor) noted, 'The tariff stuff is pitiable. I was taught to despise protectionists at Cambridge. I do still.' Quoted in R. Skidelsky, John Maynard Keynes: The Economist as Saviour 1920-1937 (London: Macmillan 1992) p.326.
15. The plans to make sterling convertible in 1947 had to be abandoned (full convertibility was not achieved until 1958) and the Attlee Government was forced to devalue in 1949.
16. Denis Healey, The Time of My Life (NY: Norton 1990).
17. Bryan Gould, A Future For Socialism (London: Cape 1989) p.82.
18. For an earlier statement of the devaluationist position by Bryan Gould, see idem, John Mills and Shaun Stewart, Monetarism or Prosperity (London: Macmillan 1981).
19. David Coates Labour in Power (London: Longman 1980). As Bryan Gould puts it: 'It is so long since we approached economic policy-making on any other basis that it is difficult for policy makers to understand how peculiar is the British obsession with financial orthodoxy and maintaining the value of assets. We are brought up to see the pound sterling as a virility symbol and an expression of our world role....The notion that we might actually use the exchange rate positively in the interests of promoting and maintaining the competitiveness of our industry and extending its productive capacity is totally foreign to us. As a consequence we have no experience of what it might be like to plan aggressively to extend market share in the markets that really matter - the international markets for mass-produced goods.' A Future for Socialism (note 16) p.83.
20. David Coates Labour in Power (London: Longman 1980). As Bryan Gould puts it: 'It is so long since we approached economic policy-making on any other basis that it is difficult for policy makers to understand how peculiar is the British obsession with financial orthodoxy and maintaining the value of assets. We are brought up to see the pound sterling as a virility symbol and an expression of our world role....The notion that we might actually use the exchange rate positively in the interests of promoting and maintaining the competitiveness of our industry and extending its productive capacity is totally foreign to us. As a consequence we have no experience of what it might be like to plan aggressively to extend market share in the markets that really matter - the international markets for mass-produced goods.' A Future for Socialism (note 16) p.83.
21. See P. Hall, Governing the Economy (Oxford: Blackwell 1986) pp.239-40.
22. The European Monetary System (Cmnd 7405 24 Nov. 1978).
23. Nick Gardner, Decade of Discontent (Oxford: Blackwell 1987) pp.120-3.
24. Give the industrial consequences of the subsequent appreciation of sterling some leading Keynesians went on to amend their position on the ERM. See for instance Lord Kaldor, 'I regard it as more than doubtful whether we could do better, from the viewpoint of the UK economy, outside the exchange rate mechanism than inside it... The probability is rather that the application of the rules and conventions of the EMS would prevent the adoption of foolish policies which on past occasions made the prospective situation of the economy a great deal worse', evidence to the Treasury and Civil Service Select Committee of the House of Commons, 10 June 1985 in Memoranda on the European Monetary System, session 1984-85.
25. Stephen George, An Awkward Partner (Oxford: Clarendon 1994).
26. There were numerous versions of the aes. See Mark Wickham Jones, Economic Strategy and the Labour Party: Politics and Policy-Making. 1970-83 (London: Macmillan 1996); CSE, The Alternative Economic Strategy (London: CSE 1980).
27. There were numerous versions of the aes. See Mark Wickham Jones, Economic Strategy and the Labour Party: Politics and Policy-Making. 1970-83 (London: Macmillan 1996); CSE, The Alternative Economic Strategy (London: CSE 1980).
28. Examples of these arguments can be found in Martin Holmes, The Eurosceptic Reader; see the extracts from Tony Benn and Peter Shore; also the article by Brian Burkitt and Mark Bainbridge, 'Britain and the European Community: Past, Present....and an Unravelling Future?', pp.167-87. See also the contribution by Mark Bainbridge, Brian Burkitt and Philip Whyman, 'A Critical British Perspective' to the debate on 'Economic and Monetary Union in Europe' edited by Ben Rosamond in New Political Economy 2/3 (Nov. 1997).
29. Examples of these arguments can be found in Martin Holmes, The Eurosceptic Reader; see the extracts from Tony Benn and Peter Shore; also the article by Brian Burkitt and Mark Bainbridge, 'Britain and the European Community: Past, Present....and an Unravelling Future?', pp.167-87. See also the contribution by Mark Bainbridge, Brian Burkitt and Philip Whyman, 'A Critical British Perspective' to the debate on 'Economic and Monetary Union in Europe' edited by Ben Rosamond in New Political Economy 2/3 (Nov. 1997).
30. Examples of these arguments can be found in Martin Holmes, The Eurosceptic Reader; see the extracts from Tony Benn and Peter Shore; also the article by Brian Burkitt and Mark Bainbridge, 'Britain and the European Community: Past, Present....and an Unravelling Future?', pp.167-87. See also the contribution by Mark Bainbridge, Brian Burkitt and Philip Whyman, 'A Critical British Perspective' to the debate on 'Economic and Monetary Union in Europe' edited by Ben Rosamond in New Political Economy 2/3 (Nov. 1997).
31. Ken Livingstone, 'Fundamental Economic Implications of a Single European Currency', Socialist Economic Bulletin (London: Sept. 1996).
32. Jonathan Michie, 'Why the Left Should be against EMU' in Dan Corry and Jonathan Michie, EMU: The Left Debate (Sheffield: PERC Policy Papers no.4 1997).
33. David Marquand, 'The Politics of Monetary Union', in The New Reckoning (Cambridge: Polity 1997) pp.93-109.
34. Ralf Dahrendorf, 'Disunited By a Common Currency', New Statesman, 20 Feb. 1998.
35. In 1995 Tony Blair said this was the key issue on EMU. If it was inconsistent with EMU then the Labour Party should reject it even if there were good economic reasons for joining. (Speech to Friedrich-Ebert Stiftung, 30 May 1995, reported in Baker and Seawright (note 2). 'A Rosy Map of Europe' in Baker and Seawright (eds.) Britain For and Against Europe. This view along with subsequent statements suggest that Blair is firmly in the EMU 'pragmatist' rather than in the 'enthusiast' camp.
36. While in opposition there was also an important strand in this debate which emphasised that while a single currency could be beneficial in principle and that it need not involve a fully fledged European government to make it work, a single currency as set out in Maastricht should be opposed (G. Holtham, 'The Maastricht Conception of EMU is obsolete', Political Quarterly 67/3 (1996) pp.244-8, as it would institutionalise an unnecessarily restrictive approach to macro-policy. The setting of a single inflation target as opposed to a nominal growth target (that is, one which incorporates real growth and inflation) was criticised. Essentially the ECB is seen as designed to fight yesterday's battle (inflation) rather than today's (long term unemployment). As Labour in office have themselves introduced a single inflation target to be met by an independent central bank this position has been harder to maintain. For the view that there is enough flexibility within the ECB statutes for it to evolve on more progressive lines than is usually thought possible on the left, see Sam Aaronovitch and John Grahl, 'Join - But Not Yet', New Economy 4/3 (1997) p.173.
37. While in opposition there was also an important strand in this debate which emphasised that while a single currency could be beneficial in principle and that it need not involve a fully fledged European government to make it work, a single currency as set out in Maastricht should be opposed (G. Holtham, 'The Maastricht Conception of EMU is obsolete', Political Quarterly 67/3 (1996) pp.244-8, as it would institutionalise an unnecessarily restrictive approach to macro-policy. The setting of a single inflation target as opposed to a nominal growth target (that is, one which incorporates real growth and inflation) was criticised. Essentially the ECB is seen as designed to fight yesterday's battle (inflation) rather than today's (long term unemployment). As Labour in office have themselves introduced a single inflation target to be met by an independent central bank this position has been harder to maintain. For the view that there is enough flexibility within the ECB statutes for it to evolve on more progressive lines than is usually thought possible on the left, see Sam Aaronovitch and John Grahl, 'Join - But Not Yet', New Economy 4/3 (1997) p.173.
38. Grahl and Aaronovitch, ibid.
39. Alan Milward, 'Approaching Reality: Euromoney and the Left', New Left Review 216 (1996) pp.55-65.
40. Corry is an exception: 'The ideals lying behind the European project, an attempt to transcend national rivalries and to bring the power of public action to bear in a world otherwise dominated by unaccountable multinational companies and global capital, are ones that have historically appealed to the left. For a while ... we feared that Europe was about increasing the power of capitalism, and that the single market was the epitome of laissez-faire. But we now understand the EU's key role in making socialist ideals work in an era of globalisation and market economics' (note 27) p.1.
41. Corry, Restating the Case for EMU: Reflections From the Left (London: IPPR 1996).
42. Corry and Michie, EMU (note 27), p.2.
43. This minimalist interpretation of the purpose of the EU's central budget under EMU (that is, temporary insurance against shocks rather than the functions we identify with nation states, such as redistribution) suggests a tension between 'constitutional' EMU enthusiasts who wish to see the creation of a federal Europe (with a larger EU budget) and 'economic' EMU enthusiasts who emphasise the extent to which an underdeveloped European government is not a hurdle to the creation of a single currency.
44. See Corry (note 36). For work estimating the size of the EU budget required see C.Goodhart and S. Smith. 'Stabilisation', in the European Economy: The Economics of Community, Public Finance Reports and Studies no.5, (European Commission 1993). This contrasts with the 7 per cent figure arrived at by the MacDougall Report (European Commission 1977).
45. Ways of involving both national and European parliamentarians in the effective monitoring of the performance of the ECB are already being developed.
46. Richard Layard, What Labour Should Do (London: Warner 1997) pp.142-3.
47. David Sanders, 'Voting and the Electorate', in Patrick Dunleavy et al. (eds.) Developments in British Politics 5 (London: Macmillan 1997) pp.45-74.
48. It should be noted that the view that past Labour governments have in any meaningful sense been inclined to 'tax and spend' significantly more than Conservative governments is questionable, as is the view that voter mistrust of Labour (in opposition) on economic competence was due to their commitment to raise income taxes and public spending. Survey evidence has consistently shown strong support for these policies.
49. For an authoritative statement of new Labour's position on macropolicy see Edward Balls, 'Open Macroeconomics in an Open Economy', Scottish Journal of Political Economy 43/2 (1998) pp.113-32.
50. For an (insider's) account of the shifts in Labour's macroeconomic thinking over the last two decades see D. Corry, 'Macroeconomic Policy and Stakeholder Capitalism' in Gavin Kelly, Dominic Kelly and Andrew Gamble (eds.) Stakeholder Capitalism (London: Macmillan 1997).
51. Recently there has been more of an emphasis on rhetoric that demonstrates that stability is a means not an end, such as in Brown's reference to 'credible radicalism' and 'prudence with a purpose'.
52. The building blocks of these changes have been transparency and clear policy targets as a means of make general pledges to stability credible. See Gavin Kelly, 'Economic Policy' in Dunleavy et al. (note 42) pp.279-303. Gordon Brown has already set about augmenting these changes in monetary policy with similar changes in the institutions of fiscal policy such as the five-year deficit reduction plan and the Code for Fiscal Responsibility.
53. One of the shortcomings of this argument, however, as the events of the first half of 1998 illustrated, was that sterling's overvaluation was a major source of instability in the domestic economy; the irony being that the primary reason for this was the government's unwillingness to commit itself to EMU membership in the first wave.
54. Guardian/ICM, Guardian, 8 June 1999 . In another analysis Paul Whiteley, using British Election Study data, showed that at the time of the 1997 election there was a big division between middle class and working class Labour voters in their attitude to the euro. Whereas 31 per cent of the former favoured adopting the euro, and 35 per cent favoured keeping the pound, for the latter only 13 per cent favoured the euro; 67 per cent wanted to keep the pound. He estimated that to win a referendum on the euro the Government would need to change the minds of 4.75 million voters. Paul Whiteley, 'Quids in - or out', Guardian, 22 June 1999.
55. Guardian/ICM, Guardian, 8 June 1999 . In another analysis Paul Whiteley, using British Election Study data, showed that at the time of the 1997 election there was a big division between middle class and working class Labour voters in their attitude to the euro. Whereas 31 per cent of the former favoured adopting the euro, and 35 per cent favoured keeping the pound, for the latter only 13 per cent favoured the euro; 67 per cent wanted to keep the pound. He estimated that to win a referendum on the euro the Government would need to change the minds of 4.75 million voters. Paul Whiteley, 'Quids in - or out', Guardian, 22 June 1999.
56. Stephen George, An Awkward Partner (Oxford: Clarendon Press 1994).
57. Whether the leadership need be so concerned about the parliamentary party is another matter. The survey evidence presented in Table 1 and Table 2 suggests that although there are important arguments in the party about the desirability of EMU, there appears to be remarkably little opposition among Labour MPs to the notion of sharing whatever monetary policy sovereignty Britain retains.
58. Stephen Gill, 'European Governance and the New Constitutionalism', New Political Economy 3/1 (1998) pp.5-26. Gill argues that 'Maastricht and EMU seek to minimise the threat of currency turbulence by moving to a single currency and by "locking-in" political commitments to orthodox market-monetarist fiscal and monetary policies that are perceived to increase government credibility in the eyes of financial market players', p.5.
59. See Table 1 above.
60. In a recent speech the Foreign Secretary Robin Cook, traditionally thought of as being on the left of the party, emphasised that the government's notion of the Third Way was premised on the rejection of both neo-liberalism and 'corporatist social-democracy'.