Saturday 10 June is supposed to be Save the Pound Day, although the original plan to have activity in hundreds of constituencies has been scuppered by the reluctance of many local Conservative associations to join in. So, in the end, it will probably amount to little more than set-piece speeches from William Hague and Michael Portillo, with noises off from an unappealing rag-tag of extremist cheerleaders from the UK Independence Party, the Democracy Movement and Business for Sterling.
Anti-Europeans have been strangely silent in the past two or three months, and it is an odd moment to revive the argument about the single currency. Not only will it contrast with the dignified commemorations by pro-Europeans of the 25th anniversary of the referendum that confirmed our place in the Common Market, but it is becoming increasingly clear that closing the door on the single currency would cost jobs.
Independent research shows that three million jobs depend on trade with Europe. Yet that trade is already being damaged because sterling is hugely overvalued against the single currency, increasing concerns about the level of inward investment coming into Britain and causing widespread job losses in manufacturing.
Inward investors, who originally came to Britain as a base from which to export to the wider European market, have been warning for months that the high pound is squeezing their margins. Mitsubishi, Nissan, General Motors and Massey Ferguson, to name but four, have said publicly what scores of others say in private: namely that, if this carries on, they will have to reconsider their investment plans in Britain.
Anti-Europeans used to say these were hollow threats. But since the upheavals at Longbridge, Dagenham and elsewhere made front-page news, they have been quieter. Now we have the first evidence, in a study by Ernst & Young accountants, that Britain’s market share of new inward investment projects in Europe has slipped back as France has jumped up the queue.
The impact of the high pound on well-known high-street brands is just the tip of the iceberg. Although it usually goes unreported, many of the 750,000 companies now involved in trade with Europe, often as suppliers to larger businesses, are also suffering. It should be no surprise that, within weeks of the sale of Rover, the tyre manufacturer at Fort Dunlop in Birmingham announced 600 redundancies.
As the reality of life outside the single currency has become clearer, the anti-Europeans have nothing to say to those businesses and those workers who are paying a heavy price. Uncomfortably shifting their posture from denial to diversion, they claim that the exporters’ pain is not caused by the additional costs of selling abroad at an inflated exchange rate, but by red tape. This simply will not wash.
We need further deregulation and, yes, there were additional problems at Rover, but one-third of BMW’s losses were caused by the high pound. The Nissan plant in Sunderland, where 2,000 direct jobs and thousands of others could be lost if the manufacture of the Micra is shifted to France or Spain in 2003, is the most efficient car producer in Europe.
Britain’s manufacturing is suffering because of the high pound. In making this argument, pro-Europeans are not just complaining about the damage caused by the short-term overvaluation of sterling, but are also pointing to the fundamental long-term difficulties of exchange-rate volatility.
Save the Pound Day shows odd timing. In May, sterling stood at a 15-year high against the Deutschmark and, simultaneously, at a six-year low against the dollar, which illustrates the problem of being trapped between the world’s two dominant currencies. As they see-saw against each other, Britain is squeezed in the middle.
For businesses operating from an island trading nation such as Britain, where we sell abroad three times more of our output than either the United States or the euro-11, this volatility can be fatal. As almost 60 per cent of our exports go to Europe, sterling’s relationship with the euro can be decisive for thousands of companies and millions of jobs.
It makes not one jot of difference whether you see sterling as high or the euro as low. European authorities might now be entitled to say, as the US told British exporters after the dollar withdrew from the Bretton Woods system in the early 1970s: “It may be our single currency, but it’s your problem.” And the current problem is obviously overvaluation caused by volatility in exchange rates.
Sterling has dropped a little in recent weeks as the euro has increased in value, and, in time, we may even reach an equitable rate. Meanwhile, the growing strength of the euro poses an uncomfortable problem for anti-Europeans who used to say that Britain should never join precisely because its weakness showed it was a failure.
Even if sterling falls further, the under-lying problem faced by exporters would remain. It is the very possibility of a return to the high pound, or even an undervaluation of sterling, that worries business. Businesses cannot effectively insure against this uncertainty, which makes long-term investment decisions risky. Possibly too risky for some to stay in Britain.
Earlier this year, Britain in Europe warned that more than three million British jobs depend on our trade with the European Union and that many of them would be put at risk if our economic ties with Europe were weakened. We did not expect to be proved right so quickly. It would be wrong to join the single currency at the wrong time and the wrong rate. The economic conditions must be right. But let’s be honest: it’s painful on the outside. Perhaps the full slogan that should be used is “Save the Pound and Lose Your Job”.
Simon Buckby is the campaign director of Britain in Europe
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