News from the New Party

The flagging pound

The falling value of the pound has headline writers drooling with the prospect of parity between the pound and the euro.  This has already given rise to speculation about whether the government is preparing to join the euro at last and much has been made of Lord Mandelson's comments in support of joining the euro at a conference of Progress, the Labour party pressure group.  The fact that he said that joining the euro was out of the question during the current economic upheaval was conveniently ignored by commentators.

Parity between the pound and the euro, if it happens, is not an economic reason to join but sends a political message.  It says that Sterling is weak and we might be better off in the eurozone.  But there is nothing particularly notable about one pound being equivalent to one euro.  To join the euro merely because of the symbolic impact of parity would be crazy when we have spent so long considering the economic pros and cons of joining.

The flagging pound is not all bad news.  In fact, the falling value of Sterling may help UK producers in the export market during this difficult period.  Indeed, devaluation has in the past been seen as desirable during economic difficulties.

But there is a downside.  A falling pound means higher import costs which, for a country like the UK heavily reliant on imports, means higher prices than we would otherwise have to pay.  On the face of it we are all poorer; then again, perhaps we were previously living in an illusion and this is all a reality check.  Learning to cope with reality can only be a good thing.