On May 18, AEI’s New Atlantic Initiative hosted a seminar led by Kenneth Clarke, a member of the British Parliament and former chancellor of the exchequer (1993–1997). Clarke spoke about the significance of the euro, the new common currency for eleven European nations.

A debate over whether to adopt the euro has engaged the United Kingdom for several years, and the issue deeply divides Clarke’s party, the Conservatives. Almost exactly a year ago, in fact, the NAI hosted an event featuring another Conservative leader and former cabinet member, Michael Portillo, who expressed deep reservations about the euro, which was scheduled to be introduced at the end of the year (see July 1998 Newsletter).

Clarke, on the other hand, strongly supports adoption of the euro "once the circumstances are right." Those circumstances would be greater convergence of the British economy with the continental European economy and a solid track record for the new currency in the countries that have adopted it so far, sometimes referred to collectively as the "Eurozone."

Assuming those conditions are met before long, Clarke predicted that the decisive factor in whether the euro gets adopted in the United Kingdom will be whether the Blair government, which he considers fairly risk-averse, will be bold enough to put the matter before the public in a referendum and to campaign actively for passage.

Looking at the continental European economies, Clarke said that the preparation for a single currency led them to adopt sound macroeconomic policies. Specifically, they reduced their budget deficits and tamed inflation. Now, however, supply-side changes, particularly in labor markets, are necessary to increase growth and to convert higher growth into job creation.

In Clarke’s view, the famous divide within the Conservative Party over whether or not to adopt the euro hinges on a disagreement over whether adoption of the euro is likely to stimulate those supply-side policies in continental Europe or not. Clarke is among those who believe it will.

His basic arguments in favor of adoption are as follows: (1) the euro exists and will continue to exist long into the future, serving Britain’s most important market; (2) the euro eliminates foreign-exchange risk among the economies that use it; and, most important, (3) "it exposes the economies of the Eurozone to extremely transparent competition," in part because under a common currency comparative production costs are plain to see.

In a separate vein, Clarke noted the "unbelievable self-confidence" of Americans in their economy. Though he wished it continued success ("the American economy is carrying a lot of weight on its back at the moment"), he reminded those present that, as recently as the late-1980s, the now sluggish economies of continental Europe were outperforming the U.S. economy.