Select Committee on Treasury Minutes of Evidence

Examination of Witness (Questions 1254 - 1259)




  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 argument—whether it is vehemently for or vehemently against. I would also like to claim that, in the times when we have covered this issue—more strongly in the past perhaps than in recent times, simply because the subject has waned in the public attention—we 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.

Mr Plaskitt

  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 the deutschmark?
  (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, of course.

  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 Germany—and 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 have one.

  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.

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