Can we join the EU and keep the Pound?

The Brexit project is in trouble. It is no longer popular, with large polling leads for rejoining. It isn’t working particularly well, with Britain’s economy certainly no better as a result of it and quite likely doing much worse. Investment is way down, which is alarming for the future. And most galling of all for the true believers, we are already beginning to move back to alignment with Europe. We are back in the Horizon programme. We have given up trying to modify the bit of the agreement that leaves Northern Ireland in the single market. We aren’t going to have a UK equivalent to the CE mark after all.

But the political situation is even worse.  The support for Brexit came primarily from a faction in the Conservative Party.  That faction used to be solid and influential.  It is now much less so.  It would still be a very brave Tory that would risk upsetting the Europhobes, but they don’t seem to have the ability to set the agenda in the way they used to.  They certainly haven’t been able to put up a fight against recent climbdowns.

But even if they were able to maintain their grip on the party, the party looks set to lose its grip on power.  If the current polling continues, there is every chance the Conservatives will be out of power within 18 months.  Labour, the likely next government, have been avoiding the subject.  But they have indicated that they plan to make Brexit work rather than reverse it.  This is understandable, if not particularly admirable.  Their route to power runs through many constituencies that voted strongly to leave.  But their members are very much pro-EU, and their voters are not far behind.  And what Labour will say and do when their problem is holding power will likely be pretty different from what they must do to win it in the first place.  All in all, it is a pretty grim situation for the true believers. Is it really possible that we will be back in the EU after all?

There are two threads they cling onto.

The first is that although people regret leaving and want to return, they might not want to go through the pain of the transition again.  And maybe the EU won’t want us in any case.  These aren’t very inspiring, of course.  Telling somebody you can’t have what you want because it is too difficult or because nobody likes you is a pretty miserable state of affairs.  But some Brexiters are going for it, even if you get the feeling that they are trying to convince themselves rather than to win over anyone to their point of view.

There is some polling that is just about consistent with what they are saying. An Omnisis survey early in September found that the majority wanting to rejoin the EU fell by about half if a follow-up question was offered asking if there was a requirement to give up the pound.  The wording of these kinds of surveys can have a big impact on the type of answer you get, of course.   It would be bold to conclude that this meant that they would come to the same judgement faced with an actual choice in the real world.

But would we have to merge the Pound and the Euro if we were to rejoin? It is a requirement for new members, but we are not new members. We are returning members. Fudging rules like this is a long tradition in Europe. And in fact, we have form on fudge on exactly this issue. Gordon Brown came up with some tests that were ostensibly to determine whether or not we should join the Euro but were, in reality, a way of keeping it on the agenda without actually doing anything. That way, the Europeans could be told we were working on it, and the public could be assured nothing was actually about to happen.

Also, the Pound is no ordinary currency. The Pound is held by investors and governments worldwide in large quantities. This gives us quite a few advantages, of which the biggest is lower borrowing costs. The Euro is an even bigger reserve currency and can charge even lower interest rates. Merge the Pound and the Euro, and both the UK and Eurozone would be better off.

If you do it correctly. Do it incorrectly, and you could do a lot of damage – as the ERM crisis of 1992 showed. I think the politics of rejoining would require putting off any merger until the waters were calm enough for it to be done safely. People like myself who would like to join the Euro must be patient. But the prospect of a time in the future where people can be offered lower borrowing costs is something to look forward to.

There are plenty of other ways out of this supposed problem. If the people running the EU want us back, which we know a lot of them do because they say so, there is a way they could speed it up. They could offer the UK a special deal where we could join without joining the Euro – with a time limit. That would create a very special dynamic. This would be especially helpful for a U.K. govt elected without a promise to rejoin. “We didn’t ask for this, but you can now decide.” With good timing and a bit of luck that could do the trick nicely.

So there really isn’t a set of magic gates keeping the UK out of the EU. Things might change. Events have a habit of overturning assumptions. But as it stands the direction of travel is clearly back in and there is more than one route we could follow.

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