Germany could relax its fiscal policy, but its deficit is already forecast to be close to 2 per cent of GDP this year. For Germany to loosen fiscal policy appreciably would be to make a nonsense of the stability and growth pact's 3 per cent limit. The UK has, for example, the highest ratio of outstanding mortgage debt to GDP and the highest proportion of short-term variable rate debt within total mortgage debt. Since the UK would account for only about 15 per cent of total euro-zone output, such a divergence between the actual and ideal monetary policies for the UK must be likely. The conclusion is obvious.
Entry is risky.
So is living without monetary autonomy. And this is to ignore many other questions raised by Emu's design. The answer to all these questions seems to be no. As Eddie George, governor of the Bank of England, has pointed out, entry into Emu is a leap of faith. What that might mean will be the subject of next week's final column on the challenges of entry into the single currency.