The effect of devaluation
The pound has been falling against the euro throughout the millennium.
This means that it’s becoming less and less attractive for foreigners to work here, and more and more attractive for British people to emigrate to the continent.
To show the effect, I’ve taken a hypothetical worker, earning £21k in the UK eight years ago, and the equivalent, €35k in the Eurozone. I’ve then increased the salary by 3% each year:
| Year | Exch. rate | Worker in the UK | Worker in Eurozone | Percentage | ||
|---|---|---|---|---|---|---|
| 2000 | 0.60 | £21000 | €35000 | £21000 | €35000 | 100% |
| 2001 | 0.62 | £21630 | €34887 | £22351 | €36050 | 97% |
| 2002 | 0.64 | £22279 | €34811 | £23764 | €37132 | 94% |
| 2003 | 0.70 | £22947 | €32782 | £26772 | €38245 | 86% |
| 2004 | 0.70 | £23636 | €33765 | £27575 | €39393 | 86% |
| 2005 | 0.69 | £24345 | €35282 | £27996 | €40575 | 87% |
| 2006 | 0.68 | £25075 | €36875 | £28418 | €41792 | 88% |
| 2007 | 0.71 | £25827 | €36377 | £30562 | €43046 | 85% |
| 2008 | 0.84 | £26602 | €31669 | £37243 | €44337 | 71% |
This is a dramatic change. In other words, seen from the continent, British people are now earning only 71% of what they did eight years ago.
The five tests have been met
It made me happy today to see that Duff of the LibDems has pointed out that the UK should join the euro:
In 1997 Mr Brown set five so-called economic tests to judge sterling’s accession to the eurozone. Suddenly, all these criteria are met. The pound has fallen to a competitive exchange rate level. The City risks being pushed aside as supervision and regulation is strengthened inside the eurozone. And the economic cycles of Britain and the eurozone are cow completely in sync as they both plunge into recession together. [...] But unless he now changes the terms of the British debate about EMU, the pound will be the ping pong ball bouncing beyond control between the giant footballs of the dollar and the euro.