Parity, Parity, Beware of Parity!

The U.K.  economy contracted in the third quarter of this year, quashing hopes the downturn was ending and instead marking the longest recession on record.
Sterling notched up its biggest one-day decline against the euro in six months as traders bet the Bank of England was more likely to expand its quantitative easing programme to secure a recovery. Over recent months, the Euro has risen against Sterling. At close of business yesterday, (Friday 23rd October) the Euro was 91.7199 pence. Ten days ago the Euro reached a peak of 94.080 pence. Were we in ordinary circumstances this paradoxically would not be of great concern for the low value of Sterling helps UK exporters and British business as a whole by making out goods less expensive than foreign goods. Of course it makes all those imported goods cost more and thus affects the inflation rate.
Sterling’s decline against the Euro has however to be viewed in a wider context. In particular, the UK’s membership of the European Union and the enormous £800,000,000,000 UK debt. The UK debt is increasing at a rate of £6,017 per second ! To quote the Office for National Statistics, “….the estimated resident population of the UK was 61,383,000 in mid-2008….” Do the math.
It is our belief that our treacherous politicians are preparing the ground for a possible UK entry into the Eurozone. Since our dearly beloved Prime Minister hardly dare blow his nose without first asking either the consent or advice of his fellow “partners in Europe” it is inconceivable that the UK racked up its enormous public debt without the tacit approval of the European Central Bank. This we believe is evidence. However we think the Europhiles are waiting until the Lisbon Treaty is finally ratified – which sadly appears to be now on the cards.
Following the ratification by the Polish President the Czech President Vaclav Klaus was the one head of state left to ratify. Klaus seemed to throw a potential “spanner in the works” when he demanded an opt-out from a charter of fundamental rights that is attached to the treaty to shield the Czech Republic from property claims from the Sudeten Germans who were expelled after World War Two. However, after negotiations with Sweden, which holds the EU presidency until the end of the year, it seems that a solution has been found. The additional “spanner” that was ratification by the Czech Republic’s Constitutional Court, appears illusory as it is now expected to approve it, possibly next week.
This means that by the end of November the Lisbon Treaty could be ratified.
In Madrid on 2nd February, 2009, the EU Economic and Monetary Policy Affairs Commissioner Joaquin Almunia said “….the chance of any country leaving the euro: zero….” and “….the chance that the British pound sterling will join: high….”
U.K. entry into the Eurozone will mean that the European Central Bank will have to accommodate the huge increase in public debt undertaken by the U.K. following the October 2008 banking crisis. However, I think that to secure Sterling’s abolition with its replacement by the Euro would be a price the Eurozone members would be willing to pay.
Entry at parity will be seamless: this is how it would likely work. The scenario:
Lisbon is ratified by the end of the year [2009] and the international currency traders mark up the Euro – modestly. The Euro continues to rise – gently and Sterling declines – gently. When parity is reached Chancellor Darling will make an emergency statement in the Commons announcing that an Order in Council had been issued that had the effect of fixing the rate of exchange of the Pound Euro at parity. That is one for one. The European Central Bank would make a similar announcement. The Governor of the Bank of England would announce that the bank have raised MLR to the ECB rate and would follow ECB advice for a temporary period. Darling would also announce that a Bill to put the U.K. into the Eurozone was being placed before parliament which would put the UK into the Eurozone.
This would require the following:
1. The agreement of all other Eurozone members to UK entry on the terms specified, that is Euro-Sterling parity and their acceptance of their joint and several liability for the UK sovereign debt mountain.
2. That the bill contain provisions that would enable the government to convince its MPs that it was honouring its previous commitments as to giving the British people a referendum on the issue. This would be achieved by inserting two clauses in the bill. The first would be a “sunset clause” that would have the effect of putting the UK in the Eurozone for a temporary period and second would be a “binding referendum clause” that would mean that for the UK to continue being a member of the Eurozone after the date of the sunset clause” the British people would have given their consent.
The reason why Labour and the Liberal Democrats would want to do this are twofold:
Firstly: parity gives them the only practical chance of putting Sterling in the Eurozone as the costs and practicalities of remarking all retail price labels in all shops would be complex, cumbersome and would raise the public’s ire. Parity makes it easy.
Secondly: Eurozone membership would split the Tory party sending the most Eurosceptic Tories into the arms of UKIP. Although Labour would consider that it would have little chance of securing a fourth term they would be happy with the prospect of a hung parliament with electoral reform in prospect.
Remember: Mandleson is Lord President of the Council. Pound and Euro coins are already the same size necessary for use in such as shopping trolley locks and vending machines.
The actual bill would probably be put through an emergency sitting of Parliament on a Saturday – thus the bill would become law by 8:00AM on Monday morning when the financial markets open.