Brown and Blair must take a flexible approach to Euroland

I have lots to say about the Budget, but there are plenty of people saying it elsewhere. Rather, I take this week as an opportunity to urge Chancellor Gordon Brown to raise his eyes from the Despatch Box and focus on the European horizon.

As business people know, it won’t matter in the long term whether Brown’s Government turns out to be “pro-family”, in his tax treatment of couples with children and other such measures, if the economic regime across Europe isn’t conducive to companies paying their employees enough to put food on the table.

That may sound unduly alarming – the threat of a massive European recession is, after all, receding – but it remains a fact that Brown is addressing the differentials between the ship’s standards of accommodation, while the iceberg of the euro remains on a collision course. The Prime Minister has said as much, though in a rather more positive light, when he talked of the inevitability of European Monetary Union recently.

European business needs a single currency. I have long maintained that businesses, rather than politicians, will ensure that it happens. To this extent, Tony Blair is right to bow to the inevitable.

More worrying is that Blair and Brown are obliged, as a “reforming” government, to look at domestic tax and regulatory matters in some perverse Third Way, when the dynamics of a developing Europe and its new euro – of which we chose not to be an inaugural part – are creating pan-European pressures that will render such domestic tweakings largely irrelevant.

The City, in the shape of Barclays and others, is indicating that the euro will fall to a value of less than a $1 equivalent by the turn of the millennium. It was launched in the New Year at a value of $1.17. We face, according to the money markets, a crisis of confidence in the new currency, further delay to British entry and a protracted tough time for UK exporters.

This will make Tory Little Englanders intolerably smug. But remember what Blair indicated – the euro is a fact of future life. If he’s right – and I believe that he is – then other factors will have to give in order to accommodate it. And this is where Blair and Brown may not be paying appropriate attention to what really matters in the euro-economy, as they tinker with domestic tax rates.

If the euro is to work – and it must – there needs to be labour flexibility in employment law in Europe. There are some 260 million people employed in the union with differing rates of productivity and remuneration relative to it.

There is a mammoth amount of unemployment weighted principally in southern Europe. There is a continental north/south divide developing that makes our own UK challenge under Margaret Thatcher in the Eighties look like a social spat at a village fete, with Germany in the north going through its own economic pain barrier, France with a foot in both camps and Portugal, Spain, Italy and Greece utterly suspicious of the prosperous north.

This is a divide defined by psychology, culture and religion as well as hard economics. It’s a divide exemplified by the differing enthusiasms for implementing European Union directives. It’s not only about unemployment. If France, a net contributor to EU budgets but a huge recipient of farming subsidies, goes with its southern heart and Germany votes increasingly with its northern head, EU decision-making could grind to a halt.

Baldly, there are two solutions to this split. We could redistribute European wealth from the north to the south and consequently introduce taxation and bureaucracy inhibitors on the growth of the EU. Or we can introduce employment legislation that encourages labour flexibility.

By the latter, I don’t mean taking slave labour from Lisbon and putting it to work in Dusseldorf. I mean introducing employment legislation that encourages flexibility, allowing a part-time and contracted-out staffing industry to develop that enhances rather than restricts employment opportunity.

EU labour laws are not of that nature. The UK’s importation of EU labour laws, such as the European working-time directive, restrict companies’ employment options rather than liberating them. And it’s not just Britain – Europe’s largest insurer, Allianz, has threatened to quit Germany over what it sees as interventionist and clumsy employment and tax regulations.

There are now 60 per cent more jobs in the United States than in 1970. Meanwhile, Europe has two per cent fewer jobs. Employment de-regulation, a significant factor in American growth, can and does work. A little over two per cent of workers in Europe are on contract or working on a temporary basis and that proportion doubled between 1994 and 1998, responding to the desire of companies and individuals to change the way they work.

BT’s entire directory enquiries service is contracted out to Manpower. With the advances of information technology, European companies should increasingly become contractors rather than employers and, in doing so, create a truly flexible European economy.

In Britain, it’s down to Blair and Brown to see that this happens. But their instincts, will be to absorb restrictive EU law. The pity is that France and Germany, with different domestic pressures, will be only too happy to see the UK competitively shackled by a lowest common employment denominator.

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