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Joining euro 'would double growth and bring in US-style affluence'

Economic and Monetary Union: special report

Nicholas Watt, political correspondent

Monday June 26, 2000

Membership of the European single currency would transform the British economy and lead to American levels of affluence, according to a report which will strengthen the hand of the cabinet's pro-euro wing.

The foreign secretary, Robin Cook, and the Northern Ireland secretary, Peter Mandelson, who want the government to step up preparations for the euro, will seize on the report which says that the economy would grow by 20% if Britain signed up to the single currency.

The two ministers are engaged in a battle with the chancellor, Gordon Brown, who wants to kick the issue of the euro into the long grass to allow him to concentrate on his management of the economy in the run-up to the election.

But today's report shows that the growth of recent years could be virtually doubled if Britain joined the single currency. The report, written by the leading US economist Professor Andrew Rose, is based on a model of the economy which uses tens of thousands of pieces of data about British trade dating back decades.

It predicts that joining the single currency would lead to:

• A tripling of British trade with the rest of euroland, which already accounts for more than half of Britain's exports.

• A 20% growth in GDP over two decades, which represents a significant increase over normal growth forecasts.

• A growth in average British incomes from the present level of £13,125 to the US average of £18,750.

Britain in Europe, the cross-party pressure group which commissioned the report, welcomed its findings. Kitty Ussher, the group's chief econ omist, said: "One of the main benefits of joining the euro is that it will make us all richer. Whatever we do, we will all start to feel the benefits."

The report will be used by the cabinet's pro-euro wing whose members believe that ministers must do more to sell the euro if the government is to stand any chance of winning a referendum on the single currency. Campaigners have concentrated until now on the dangers of remaining outside the euro, but today's report is the first concrete evidence of the huge benefits of joining the currency.

In his report Prof Rose, of the University of California, Berkeley, argues that countries which sign up to common currencies enjoy a dramatic increase in trade. "Countries that share a common currency engage in substantially more trade and more trade results in higher income."

He writes: "The monetary barriers are now falling across Europe. The UK should seriously consider whether it wishes to forgo this historic opportunity for an enormously beneficial expansion of its European trade."

Opponents of the single currency will dismiss Prof Rose's report as a simplified prediction of what could happen to the British economy.

The Treasury will also argue that his conclusions will have no impact on the government's policy, which is to assess the chancellor's five economic tests after the next election before deciding whether to hold a referendum.

The report will influence the cabinet debate over the euro. Downing Street insists there are no divisions among ministers, but the pro-euro wing makes no secret of its anger with the chancellor for attempting to stifle debate.

     

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