ABSTRACT
Introduction Participation in further EU integration will place an additional straightjacket upon sovereign macroeconomic policy and increase the difficulty of pursuing those policies optimal to its own national interest. For example, the model for EMU seeks to impose a particular institutional framework that restricts the flexibility of action of individual countries in order to enable economic policy to be determined, or at least co-ordinated, from the centre. Many economists (Jamieson, 1998; Ormerod, 1999a; Michie, 2000; Minford, 2000) argue that greater autonomy for individual nation-states, under the principle of subsidiarity, might provide a more stable economic environment in which to pursue further cooperation between countries. However, largely due to the political desire to tie members more closely together, the EU is seeking to progressively replace economic autonomy for a nation-state by the requirement to co-ordinate its economic strategy with the EU norm, or else be subject to sanctions levied by the EU Commission (Pennant-Rea et al., 1997). A decision to reject such developments would restore to national government those economic instruments essential to the management of its economy. Governments will be able to devise different economic programmes and, once endorsed by the electorate, will possess the means by which to pursue their chosen objectives. Democracy will, therefore, be restored, so that citizens can once again enjoy the opportunity to choose the economic strategy pursued by the government of the day. Moreover, governments will be able to pursue a more balanced economic programme, pursuing the multiple objectives of full employment, high economic growth and a sustainable balance of payments as well as low inflation. The opportunities are substantial. To illustrate the broad range of different policies that could be enacted, this chapter outlines a number of broad alternative economic strategies that could be pursued once a nation is freed from the restrictive grip of the ECB and the requirements of the TEU, let alone any future developments. Additionally, it discusses the development of a complementary industrial strategy and exchange rate policy. The former can only prove effective if supplemented by fiscal and monetary policies that target growth and reject deflation. For example, inflation
is not a disease in itself, but the symptom of an economy that cannot produce enough to satisfy domestic demand. The solution is to boost demand and channel it to domestic industry, improving profits, stimulating production and hence productivity, and providing the incentive to invest; thereby cutting unit costs and inflation through a considered policy of economic expansion. It can be achieved, free from EU constraints, through control of the exchange rate and the accompanying interest rate changes. Such a policy makes it profitable to produce domestically by utilizing the price mechanism to boost exports, encouraging import substitution and luring British industry back into sectors it has abandoned. A tax on imports would provide crucial support. An effective exchange rate policy is critical to the successful implementation of the outlined options for macroeconomic policy. The intention is to demonstrate, not only that national economic management is still feasible, but also that it is preferable to transferring the main levers of macroeconomic policy into the hands of the EU which is incapable of using them consistently in the best interests of all member states simultaneously.
