In The Euro as Politics, a ground-breaking new study published by the IEA, pro-European economist Pedro Schwartz* slams both the proposed EU constitution and the agreement in principle by the UK government to adopt the euro, while offering a new vision for the EU.
Schwartz argues that the British government has focused the discussion on the adoption of the euro on its direct economic consequences. But the direct consequences of Britain joining the euro for jobs, trade, investment and growth are insignificant compared with the wider political and constitutional implications.
The most crucial aspects of the political debate are not notions of "sovereignty" on the one hand or "maintaining influence" on the other hand: the key reason to maintain sterling is to ensure "monetary competition". Competition between currencies will make it less likely that central banks will create inflation.
Monetary competition should form part of a more general political package. Monetary arrangements will strongly influence the kind of European Union we build, and the arguments in The Euro as Politics can be applied to a wide range of European policy areas. Professor Schwartz argues that the UK should seek to build a free-trade Europe based on competition and not on harmonisation of regulations and laws.