Examination of Witness (Questions 1254
TUESDAY 11 MARCH 2003
1254. Can I open this session and welcome you
along to our UK and Euro inquiry. As you know, we have two aspects
to this inquiry: first of all, the assessment of the case for
UK entry to the euro; and, secondly, the way in which public understanding
of the economic issues needs to be developed before any referendum.
This morning we are obviously primarily interested in the latter
aspect but, given your long expertise in communicating with the
public, one of the things we want to try and tease out this morning
is how best the public could be communicated with, if and when
any referendum takes place. Could you briefly set out your views
for us on that matter?
(Mr Kavanagh) I think when the battle is finally joined
and we go into a referendum, or even begin the lead-up to a referendum
campaign, there will be no shortage of coverage for and against
the argument of whether we should go into the euro. I would like
to think that that will be well-informed argumentwhether
it is vehemently for or vehemently against. I would also like
to claim that, in the times when we have covered this issuemore
strongly in the past perhaps than in recent times, simply because
the subject has waned in the public attentionwe have at
least stuck to the facts, even if we have given our strong interpretation
of the rationale, the objectives and the consequences. I think
when the time comes there will be no shortage of column inches
or media space devoted to the subject.
1255. How do you see the role of The Sun
in any ensuing campaign? Will it be educative or campaigning?
(Mr Kavanagh) I hope it will be both. We have declared
that we would fight it very strongly. That we would be opposing
the plan to get rid of a currency which has served us well; that
we would be signing up to a system which is remote, and unaccountable
largely, very bureaucratic and, occasionally, corrupt; and we
would be relinquishing our sovereignty in the process.
1256. I was looking at an article you wrote
in the paper on 31 December 2002 on the first anniversary of the
euro, where you said, "The great euro gamble is marking its
first birthday. Is it a celebration or a wake?" You went
on to say, "The answer can be found on the grim faces of
6 million unemployed Germans who mourn the loss of their famous
deutschmark. The one-size-fits-all policy means interest rates
are too high for Germany, and unemployment has grown in Germany
every month, bar one, since the euro". I was interested to
hear you say just now that you want to stick to the facts in the
argument. It is true that unemployment has risen in Germany since
the advent of the euro; it has risen from 7.7% to 8.2%; and because
of that rise you are condemning the euro for its impact on the
German economy. Is it not also a fact that unemployment rose from
4.2% to 9.7% in Germany between 1990 and 1997? Does that not condemn
(Mr Kavanagh) I think that the problem for Germany
is not just the exchange rate or the interest rate, it is because
of many of the problems of its own rigid economic structures,
many of which are causing some grief now to Chancellor Schroeder,
and are the subject of Chancellor Gordon Brown's close scrutiny
in terms of Europe-wide flexibility. I think that the interest
policy is, at the very least, partially contributing to that problem,
1257. It is partially contributing?
(Mr Kavanagh) Significantly.
1258. When German unemployment was at its record
high following unification, and the impact that had, it reached
a record high of nearly 10% in 1997. At that time the Bundesbank
was responsible for interest rate policy in Germanyand
the lowest the Bundesbank ever pushed rates to was 2.75%. Now
the European Central Bank is in charge rates are 2.5%. In what
sense are they completely inappropriate for the German economy?
(Mr Kavanagh) They have taken a long time to come
down; they have been very slow. I think that interest rate and
exchange rate policy have something to do with the position of
Germany at the moment, plus its inflexibility. There would be
an argument, which has already been articulated by economists,
that they need a more flexible exchange rate in relation to the
dollar. Whether that is a right or a wrong theory, they do not
1259. It took the Bundesbank five years to get
interest rates down to 2.75%. That was not very quick, was it?
(Mr Kavanagh) Precisely my point.