Over the whole period the average real growth rate has been reduced by between a half and a whole point. This downward bias in the MPC’s approach is analysed in a careful statistical study by Christopher Martin and Costas Millas, of the Economics Department, Brunel University (Modelling Monetary Policy available from Christopher. Martin brunel.ac.uk.)Now the case for the ECB. See chart two, which is similar to chart 1 except that earnings are omitted and a track of oil prices included.

Over the three years 1999-2001 the eurozone economy grew at 2.6 per cent per annum compared with 2.4 per cent in the UK, 3.1 per cent in the US and 2.2 per cent in the eurozone in 1996-98.In terms of growth, the ECB has performed better than the MPC, better than the economy of the pre-euro eurozone, and comparably with the US late-1990s “tiger”. Unemployment fell from 10 per cent in 1999 to 9.3 per cent in 2001. Inflation was half a point below target in 1999, on target in 2000 and half a point above it in 2001. In 2001, if the lagged effect of oil prices were removed, the eurozone would probably have appeared on target in that year also.

The ECB has also maintained real interest rates at a lower level than in either the US or the UK.In fairness, I should also argue the case against the ECB. The main case for criticising the ECB lies in the interest rate increases of the year 2000, which could be held responsible for some of the eurozone growth slowdown of 2001 and the historically unique collapse of German economic growth (see table four) that occurred in the last quarter of 2000 The explanation for what happened is not difficult. By attempting completely to forestall an oil price increase from affecting the domestic price level, the ECB also deflated the real economy. The correct procedure would have been to let domestic prices rise to some extent.In the event, eurozone inflation did rise by half a point in 2001, but since real growth fell by no less than two points, one can say with certain hindsight that the eurozone nominal interest rate was too high by at least a point, if not more.In summary, the performance of both the ECB and MPC showed strengths and weaknesses and both seemed somewhat biased against real growth.

However, the facts do not support the view that the MPC has been a better manager of monetary policy for the British economy than the ECB has been for the eurozone.On to the exchange rate. I have called my pamphlet We can go in now, but actually the exchange rate still needs to fall a bit before we can safely join. If it has not done so by the time a referendum is held, the Government should make clear in the question asked that it would not enter until a satisfactory entry rate had been made possible.The ideal rate for UK entry lies between €1.40 to the pound (72 pence to the euro) and a little higher. That is the rate which would equalise the average cost of goods over the whole gross domestic product of the UK and the eurozone. It is also a rate which would help correct the current UK trade deficit with the eurozone. My calculation is supported by the OECD (Main Economic Indicators, May 2002, page 273, and The Pound’s Fair Value in the Economic Survey of the UK 2001). The same conclusion was also reached in the recent Ernst and Young Item forecasting club report UK Economic Prospects Winter 2002.Today’s rate is €1.59 Recently it was a low as €1.54 So it is not true that we are “almost there”.