Given that an opt-out clause for Switzerland would be unlikely, joining the European Union would in fact be tantamount to joining EMU. In other words, many of those who propose EMU membership accept the need aggressively to push on with economic reforms but reject the notion that it can be done independently. The responsibility for introducing reforms is in effect delegated to the European Union. This line of reasoning is flawed and must be dismissed. It is true that the obvious appeal of such a strategy is the ability to blame the European Union for having to introduce unpopular reforms and ultimately transfer the political costs of reforms to Brussels. Nonetheless, as the examples of several member states demonstrate, EMU membership does not guarantee successful reforms. First of all, the European Union, let alone the European Monetary Union were not primarily designed to be vessels to accommodate liberalization efforts. Moreover, in the cases where membership does require legislative adjustments which amount to economic reform steps, EU law only prescribes the formal legislative change. Implementation responsibility typically remains with local authorities on the basis of the subsidiarity principle. This point is reinforced when considered from a macro-economic perspective. Far-reaching domestic reforms often constitute painful macro-economic adjustment processes. With EMU membership, a country loses its monetary policy and at least to some extent its fiscal policy lever. With these important macroeconomic compensating mechanisms no longer available, the cost of domestic economic reform is in fact likely to rise.

BIS Review 24/2004  5  Chart 1 Correlations of UK GDP Growth with US and EU  1.0 0.8 0.6 0.4 0.2 UK-US  UK-EU15  0.0 10 Years Rolling Correlation -0.2 1970  1975  1980  1985  1990  1995  2000  Chart 2 Long Term Interest Rates in the UK, Germany and Switzerland in percent 18 16 14 12 10 8 6 4 2 Germany  U.K.  Switzerland  6  04  02  Ja n  00  Ja n  98  Ja n  96  Ja n  94  Ja n  92  Ja n  90  Ja n  88  Ja n  86  Ja n  84  Ja n  82  Ja n  80  Ja n  78  Ja n  76  Ja n  74  Ja n  Ja n  Ja n  72  0  BIS Review 24/2004  Chart 3 Real GDP Level in 2003 (1980=100)  Korea Singapore Taiwan Province of China Hong Kong SAR Ireland Cyprus Luxembourg Israel Australia United States Norway Canada Spain New Zealand Iceland Japan Portugal Belgium Finland United Kingdom Netherlands Greece Sweden Austria Denmark France Germany Italy Switzerland 0  BIS Review 24/2004  100  200  300  400  500  7  Chart 4 Annual GDP Growth in the UK, Germany and Switzerland in percent 7 6 5 4 3 2 1 0 -1  Germany Switzerland U.K.  -2 -3 1980  1985  1990  1995  2000  Chart 5 Correlations with Germany’s GDP Growth  1.2  1  0.8  0.6  0.4  0.2  0 AUT  BEL  CHE  DNK  E15  ESP  1990.1-1998.4  8  FIN  FRA  GBR  ITA  SWE  1999.1-2003.4  BIS Review 24/2004  Chart 6 12 Months Growth of the Halifax House Price Index  30% 25% 20% 15% 10% 5% 0% -5% -10% -15% Apr 90  Apr 92  Apr 94  Apr 96  Apr 98  Apr 00  Apr 02  Chart 7 Annual CPI Inflation in the UK 25%  20%  15%  10%  5%  19 62 19 64 19 66 19 68 19 70 19 72 19 74 19 76 19 78 19 80 19 82 19 84 19 86 19 88 19 90 19 92 19 94 19 96 19 98 20 00 20 02  0%  BIS Review 24/2004  9