Instead of the high value of sterling relative to the euro being a reason for joining and bringing it down to more reasonable levels, it is now almost universally declared to be an insurmountable obstacle to joining. On the same day, the Chancellor spoke through his bosom pal, Ed Balls, now Chief Economic Advisor to the Treasury. The Government's objective for the exchange rate remains a stable and competitive pound in the medium term. But there is no short term exchange rate target competing with the inflation target. So it appears that joining the euro is out for the foreseeable future, and not because the Chancellor's famous five economic tests have not been passed.
Sterling is too high against the euro for joining to be contemplated, it is said.
A sixth economic test has in effect been added to the famous five. What is more, the Government is not going to try to lower sterling's exchange rate, with a view to joining. So, there appear to be no measures that the Government is willing to take in the short to medium term to bring about an exchange rate appropriate for joining the single currency. However, the logic of what Eddie George is saying is that a rapid fall in sterling's value is highly undesirable, even though the high value of sterling is crucifying UK manufacturers exporting to the euro zone and is in part responsible for the recession in UK manufacturing. Then the rate of exchange on entry would be somewhere in the ERM band, which makes a lot more sense than plucking a rate out of thin air.