So, would have being in the euro been a better thing in this crisis than having sterling?
PK: Well, the UK has achieved a lot of monetary traction in the way that no one else has through the depreciation of the pound. In effect, you\’ve carried out a successful beggar-my-neighbour devaluation.
WH: So, the United Kingdom might actually get through this in reasonably good shape?
PK: Yeah. That\’s why I\’ve been watching with an outsider\’s slight puzzlement, your bizarre political circus.
WH: Darling and Brown deserve more credit than they\’re given?
PK: If the government can hold off having an election until next year, Labour might well be able to run as \”we\’re the people who brought Britain out of the slump\”.
WH: So your advice to the Labour Party is: hold steady.
PK: I don\’t know enough about the other aspects of politics, but I would guess that the option value is quite high that the economy might actually have turned a corner. That\’s unique. That\’s a uniquely British thing. None of the other G7 countries has anything like that.
WH: And that\’s a combination of our big beggar-our-neighbour devaluation, aggressive monetary policy, successfully recapitalising our banks and our fiscal policy.
PK: There hasn\’t been very much discretionary fiscal expansion when all\’s said and done.
WH: Well, there was a £20bn temporary cut in VAT.
WH: Which is non-trivial.
PK: Non-trivial. But not much [other spending], as I understand.
WH: Well, there was bringing forward £3-4bn of capital spending. Perhaps together in a full year the stimulus was 1.5% GDP. Maybe 2% at the outside.
PK: Monetary policy has been more aggressive – though maybe less than the Fed – and the depreciation of the pound is a nice thing from a UK point of view.
There we have it. No. It was far better to have had sterling than to have been in the euro.
What\’s going to be amusing is seeing Will Hutton try and incorporate this into his worldview.