RBS will leave the UK too broke to join the Euro

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.

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4 Responses to RBS will leave the UK too broke to join the Euro

  1. jameshigham says:

    Sorry state we’re in.

  2. It could be worse, we could be in the Euro.

  3. CherryPie says:

    Still no to the Euro for me!!!

  4. Adam Polson says:

    We might HAVE to join. The long-term prospects for sterling don’t look at all good! If you take an honest look at the country’s finances, its level of debt and various structural weakness (transport – education – social issues – overdependence on, and sickness within, our financial institutions) then consider that we’re facing a terrible recession, enduring a dire credit crunch, we’re flat broke, in awful debt (Credit Default Swaps anybody?!) and have few natural resources to fall back on. We will do well to avoid putting out the begging cap to the IMF. I know all this and so do you and any potential investors. If the pound is not viable the Euro will be our only realistic option. If we leave it to late membership will be on Europe’s terms, not ours.

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