A penny for Gordon's thoughts

It would have been great to be a fly on the wall at the Cabinet meeting when ministers discussed the reports’ findings. We found ourselves wondering whether the culture secretary agreed with the conclusions in the report on the cost of capital, or what the deputy prime minister’s views were on the subject of endogeneity of the monetary transmission mechanism.

Imagining this scene brings into sharp relief the fundamental struggle surrounding the whole issue of EMU. On the one hand, a couple of thousand pages of intellectual argument and rigorous analysis, not all of which pointed to the euro as a good thing. There was little evidence to suggest that the cost of capital would be lower in EMU and some evidence that volatile exchange rates actually increase the level of trade. On the other hand, we see political posturing and unsubstantiated claims that Britain will somehow lose out if we fail to play our part in the euro project.

The result of this tussle was an unattractive compromise agreement to revisit the tests next Budget day.

As long as Gordon Brown can continue to assert his authority over the euro issue, then British business is probably in the safest pair of hands we can expect. His intellectual command of this subject ought to have his political opponents quaking in their boots. But politics is rarely about ‘optimal currency area theory’ or ‘asymmetric shocks’. So as long as there are Cabinet ministers like Peter ‘60%’ Hain running around trying to tell the Chancellor what to do, then the EMU debate is in danger of being derailed by vanity and ambition.