Europe's Economic Dilemma [Hardcover]

John Mills (Author)

Book Description

Publication Date: March 15, 1998 | ISBN-10: 0312211147 | ISBN-13: 978-0312211141

This book analyzes the reasons why the European Union's growth has fallen during the last quarter of a century to little more than a third of its previous level. It concludes that the major reason has been politically driven attempts to lock EU currencies together in inappropriate economic circumstances. These have led to chronic deflation, rising unemployment and falling investment and competitiveness as EU Member States, without exchange rate flexibility, have found themselves unable to compete with Germany. The book then turns to proposals for overcoming the EU's current economic shortcomings. It concludes that the way ahead is not to proceed with the single currency, but to use instead a much more accommodating monetary and macro-economic system.

Editorial Reviews

Review

'Economics is a practical art gone wrong...John Mills is different. A skilled and unusually lucid economist, his work is eminently practical...' - Austin Mitchell, MP '...It is a book of major importance, and a totally constructive contribution to the economic debate. Let me not merely recommend but beg or even command everyone to read it as soon as possible.' - Geoffrey Gardiner --This text refers to an out of print or unavailable edition of this title.

About the Author

John Mills is Chair of the Policy and Resources Committee of the London Borough of Camden.

Product Details

• Hardcover: 192 pages
• Publisher: Palgrave Macmillan (March 15, 1998)
• Language: English
• ISBN-10: 0312211147
• ISBN-13: 978-0312211141
• Product Dimensions: 8.8 x 5.7 x 0.9 inches
• Shipping Weight: 13.9 ounces
• Average Customer Review: 5.0 out of 5 stars  See all reviews (1 customer review)
• Amazon Best Sellers Rank: #10,293,269 in Books (See Top 100 in Books)

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Customer Reviews

Most Helpful Customer Reviews

5.0 out of 5 stars Superb expose of the idiocies of the European Union, July 31, 2001

By 

William Podmore (London United Kingdom) - See all my reviews
(REAL NAME)   

This review is from: Europe's Economic Dilemma (Hardcover)

This is the book to put into the hands of anybody who still thinks that Economic and Monetary Union would be good for Britain or for any other country. John Mills is a very rare person, an economist with business experience in trade and production. In this excellent book, he shows that Economic and Monetary Union would be bad for all our economies.

Experience shows that the more economically integrated the European Union has become, the worse it has performed. From its start in 1958, the original six members had no form of economic or monetary union, and they grew by 5.4% a year. Then in 1972 they created the currency snake; it lasted only until 1976. By 1974, economic growth had ceased. After the snake expired, growth resumed: 4.9% in 1976, 3% in 1977-80.

They created the Exchange Rate Mechanism in 1979 and it lasted until 1993. The ERM slowed growth and raised unemployment across the EU: growth was only 1.7% a year; unemployment averaged 7% and inflation 7.8%. Even so, we joined, because the whole establishment wanted us to, not because the people wanted to. Polls in 1989 showed that 93% of the Chief Executives of large British companies and City institutions believed that we should join the ERM. We joined in October 1990: during our two-year membership unemployment rose by 1.4 million and national output fell; manufacturing output fell by 7% and manufacturing jobs by 14%. It was worse for us even than for the rest of the EU.

In the same period, the rest of the world grew by 3.2%, proving that the EU's slow growth was not due to world conditions. The ERM was the main cause of the EU-wide recession: from 1990 to 1993, growth ceased altogether. After ERM expired, growth resumed: 2.9% in 1994, 2.4% in 1995. But implementing the Maastricht criteria for EMU slowed growth again and raised unemployment. EU unemployment is now 12%, 30 million, according to ILO figures.

What would entering Economic and Monetary Union mean for us? It would mean deflation, higher unemployment, slump. It would also mean the end of Britain's independence. Politics and economics are indivisible. The arguments for constitutional, economic and political independence are one. The experiment of making the Bank of England independent has clearly failed: we should call on the Government to reassert control of interest rates. This is a political demand, a constitutional demand, and an economic demand.

Under EMU, eight unelected European Central Bankers would control our currency, and as Keynes said, "Whoever controls the currency, controls the Government." To make EMU credible to the markets, they would keep interest rates high, imposing deflation. This would mean higher unemployment and taxes, lower wages and lower public spending.

The Gold Standard was a way of trying to fix currency values together. It failed disastrously, ending in the Great Crash. Economic growth ceased. After the Gold Standard expired, growth resumed. In 1931, Britain left the Gold Standard, devaluing by 24%; money supply rose by 34%; interest rates were about zero, and there was some tariff protection. Labour's `Iron Chancellor' Philip Snowden said leaving the Gold Standard "would reduce the standard of living of the workman by 50%." What actually happened? From 1932 to 1937, manufacturing output rose 58%; 2.7 million new jobs were created (1.3 million in manufacturing); growth averaged 3.8% a year, and living standards rose. Lower interest rates brought a boom in house-building.

By contrast, the French Government stayed in the Gold Standard and kept the franc overvalued: GDP fell by 17%, industrial production by a quarter, until the Popular Front Government devalued the franc.

This Government claims that the way to restore industry's competitiveness is to invest in skill. But this will not restore manufacturing while there is still not enough demand in the economy. The present regime of tight money and high interest rates, leading to a high exchange rate, doesn't work. It's like putting on the brakes when you're going up hill. An overpriced pound means dear exports and cheap imports: in the first quarter of 1998, our goods trade gap was £4.7 billion, the worst since 1990.

The remedy does not lie in reforming the labour market or the public sector. To stimulate output and employment, we need more demand, higher wages and more public spending. Supply-side reforms, better education, more information technology, may improve efficiency and productivity, but without an expansion of demand this can lead not to growth but to more unemployment and unused resources.

The Maastricht Treaty which set up EMU has only money and budget targets, there are no real world targets, for full employment or higher growth. It is innately deflationary: those not meeting the targets must deflate, yet those meeting them do not have to reflate. A Treaty cannot be reformed; it can only be accepted or rejected. Sir Nigel Wicks, Chair of the EU Monetary Committee says, "I would not regard monetary policy as an instrument for solving unemployment." We who have experienced decades of monetarism in action regard that as an understatement. EMU is monetarism on a European scale; it is Thatcherism on a European scale.

We need lower interest rates to fund projects fitting in to our plans for rebuilding Britain. We need lower taxes on jobs. We need taxes on capital: tax Murdoch, not toady to him. We need to legislate so that pension funds, which are heavily subsidised by taxpayers, are required to invest in British industry and services. The Government could promote investments with a high social rate of return. We need to reimpose controls on speculators. But we can't do these jobs when in EMU: EMU forbids them all.

We need to keep out of EMU. Joining would clearly be bad for our health. Then we will rebuild Britain as a self-reliant, industrial and sovereign nation.