Moreover, this has been rewarded. Since the Bank of England was made operationally independent, the gap between yields on German and British 10-year bonds has shrunk by a percentage point, to about 0.75 per cent. British bonds are even yielding 0.8 percentage points less than their US equivalents. But these differences in short-term rates largely reflect the different cyclical positions of the two economies. The Organisation for Economic Co-operation and Development estimates that the UK will be operating at its potential GDP level this year, while Germany is 1.6 per cent below it.
Sterling also looks likely to fall against the euro, in the medium term.
The ratio of gross public debt to GDP is forecast by the OECD at 46 per cent next year. Given sound public finances, low inflation and sensible policy arrangements, there is no reason why the UK should not enjoy a monetary policy as good as that on offer inside the euro-zone. In 1997, when it was clear the UK would not be joining Emu, it received 34 per cent of all FDI into the European Union. It was the third-largest recipient in the world, after the US and China. The UK was also host to 23 per cent of all FDI within the EU, in spite of having remained outside the European exchange rate mechanism for all but two years of its existence.