Sunday, December 14, 2008

What's better? 3% or 2%?

Amidst all the other current economic woes, the pound has been falling and the high street commercial rate is now below parity. I must check to see if I have any Euro notes lying around...

And the old debate about whether or not to join the Euro is slowly coming to the forefront, although the levels of political ferocity seen in the past haven't yet materialised. But one point I haven't seen much of is the debate over which interest rate is better for this country - the Bank of England's 2% or the European Central Bank's 3%?

A single percentage point doesn't look that much different, does it? Yet such a difference has very real consequences for borrowers and savers, for mortgage levels, for taxation - one cold go on endlessly. Not for nothing does the Bank of England's Monetary Policy Committee decisions get heavily analysed, even when the rate is shifted only 0.25%.

So is anyone calling for the UK to have the ECB interest rate? Because that is what entering the Euro will involve. The British economy has long followed a different path from that of many other European countries and frequently the two interest rates have moved in opposite directions because of this. Joining the Euro is not going to change all this. Nor is it going to be a magical solution to current economic problems.

2 comments:

Simon Watkins said...

You bring this up now as a reason NOT to joing the Eurozone, yet ignore the fact that for years the interest rate there was significantly lower then the UK's.
Why, then, during this time were you not a huge Europhile?

I might expect nothing less I suppose from a Euroskeptic whose arguments are based on emotive reasons rather than logic.

Tim Roll-Pickering said...

I'm so glad to see that Europhiles are willing to engage with Eurosceptics on a level basis, rather than dismissive comments and ignoring the basics.

If lower interest rates had been right for the UK's economy during those years then the UK should and would have had lower interest rates. But they were not good. They would have meant that money was even cheaper than it actually was, and thus far more loans would have been taken out, with the result that the credit crunch would now be even worse. Hence we did not have them.

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