It's not the economy, stupid

To announce that you will join a new venture only after it has been proved successful may well be a prudent position, to use Gordon Brown's favourite term; it is hardly an heroic one. If the disciples had been so timid, Christianity would be a long-forgotten Palestinian sect and, if the founding fathers of the US had hedged their bets, North America might now be a Balkanised patchwork. To ask, at some unknown future date, whether the euro is successful is no more sensible than to ask if sterling or the dollar is successful. The British problem is that we have never understood the momentum of European union. Because we were not occupied in either world war, we do not grasp how the social dislocations, the terrible privations and, above all, the abiding hatreds (between citizens of the occupied population, who remember who collaborated and who didn't) left their mark on the French, Dutch, Germans and so on. Many in those countries will pay almost any price to avoid a repetition. That, not the hope of selling a few more BMWs, is what has kept European union on the rails. Because they fail (or refuse) to understand this, British politicians nearly always ask the wrong questions about Europe.

It is perfectly reasonable to suggest, as Peter Kellner does on page 16, that political union should precede economic union, that the EU has put the cart before the horse. In the 19th century, the US, Germany and Italy all had common governments before they had common currencies. Monetary union takes away the three main levers by which a nation can protect itself from a flight of capital and jobs: tariffs, variations in the exchange rate and changes in interest rates. Unless some central authority can step in to raise taxes or borrow sufficient money to prop up, say, an ailing Belgium, that country would face utter ruin. That is why "convergence" was so important if monetary union was ever to happen. It ensures that no member country is too weak (relatively) to withstand the loss of traditional economic protections. For that reason the launch of the euro, leaving aside technical hitches, was bound to be a success. But, also for that reason, its continuation depends on rigid and orthodox controls: any government that strays far from balanced budgets risks bringing down the whole venture.

That is one good reason for asking questions, and it brings us to a second reason. All the important economic decisions in Europe, affecting people's lives from Berlin to Barcelona, will now be taken by unelected bankers and financiers. Other decisions are taken by unelected lawyers and civil servants. That is the price Europe pays for the lack of a proper federal structure. It is an affront to liberal democracy, which is precisely the political ideal that a united Europe is supposed to protect for all time. Indeed, the EU's political structures, if adopted by any applicant for membership, would probably be rejected as unacceptably anti-democratic.

British politicians, then, particularly on the left, have every reason to question the merits of the euro. There are three tenable positions. The first is out-and-out Euroscepticism, which opposes federalism and affirms the primacy of national sovereignty. The second is support for British entry to a single currency, in the full understanding (which is shared on the Continent) that this will eventually lead to a federal political union. The third is the Kellner position: that a single currency should be opposed until there are federal structures to manage it democratically.

Yet very few British politicians subscribe publicly to any of these positions. Even the Eurosceptics do not accept the full logic of the first position: that, since the EU is, and always has been, irrevocably directed towards federal union, Britain should withdraw. Rather, the Eurosceptics suggest that the clock can be reversed to the days of the Common Market, that we can keep economic benefits while opting out of the politics. That is not possible. Nor is it possible, with honesty, to wait until Treasury geniuses can calculate that entry to the single currency is "in British interests". Which British interests? Those of British capital? Or of British labour? Despite the PM's best efforts, these are not yet identical.

That Britain can discuss Europe only in narrow economic terms is an indictment of our politics. On a strict interpretation of economic advantage, Britain would have made peace with Hitler in 1940. Then we had vision; now we don't. Our European partners are exploring a dream that, as H A L Fisher wrote in 1936, has "haunted the imagination of statesmen and peoples" since "the first century of our era". Yet in the chambers of Westminster and the corridors of Whitehall, you will hear barely the faintest echo.

This article first appeared in the 08 January 1999 issue of the New Statesman, Stuff the millennium