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It is one of the great might-have-beens in modern British history. In June 2003, Gordon Brown ruled out joining the euro, for the time being. The road to Brexit 13 years later was a long and winding one. Could departure from the European Union have been avoided if Labour’s redoubtable chancellor of the exchequer had instead endorsed euro membership 20 years ago?
This was not the first opportunity to join Europe’s single currency that the Labour government had ducked. Tony Blair’s landslide victory in May 1997 coincided with a decisive stage in the euro project. The following spring, 11 out of the then 15 members of the EU got the go-ahead to adopt the new currency at the start of 1999.
The previous Conservative government, led by John Major, had negotiated an opt-out from the planned monetary union in the Maastricht Treaty of 1992. But Blair wanted to reset relations with the EU, signalling a fresh start in June 1997 at a summit with European leaders in Amsterdam. To show willing, the new prime minister signed up to the social chapter of the treaty, from which Major had also secured an opt-out. Could Blair go further and drop the euro opt-out?
The answer, from his chancellor later that year, was a resounding no, at least in Labour’s first term of office. If Britain was to join the euro, it would be on his conditions, set out in five economic tests. When Brown revealed the Treasury’s assessment of them in October 1997, he reported four fails and only one pass, closing down the issue for the rest of the parliament.
But by June 2003, Labour was two years into its second term of office and a further and much more detailed assessment of the five tests had been conducted. The two most crucial were about convergence and flexibility. Was the economy sufficiently aligned and compatible with the eurozone to live with interest rates set by the European Central Bank (ECB) in Frankfurt? Was it flexible enough to adjust readily to possible future shocks? The next two tests were about the impact on investment and the financial sector, especially the City. The final one was whether joining the euro would promote higher growth, stability and more employment. ...
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