In uncertain times times, it is human nature to seek safety in numbers. Looking for a gang to join or a big tent to shelter in makes sense when the outside world looks dangerous.
Iceland, after years of opposition, is considering joining the EU and could be a member as early as 2011. The Work Foundation’s Chief Executive, Will Hutton, argued that the UK should now swallow its pride and join the Euro. The LSE’s Professor Willem Buiter agrees but sounds a note of caution, and this is the funny bit, that after its bailout of RBS, the UK will be in too much debt to meet the entry criteria.
Immediate euro zone membership, with full access to the resources of the Eurosystem would be the first-best option for the UK today. Unfortunately, once the majority stake in RBS is accounted for, the UK does not meet the debt criterion for EMU membership (gross general government debt less than 60 percent of annual GDP). Nor does the UK meet the Maastricht deficit criterion (general government financial deficit less than 3 percent of GDP).
Regardless of whether or not joining the Euro would be a good idea, that we now couldn’t do so even if we wanted to is a sorry state of affairs.