/www.fxserver.com/ The ongoing debate about the pros and cons of full membership in the European Union has in my opinion not focused adequately on the implications of joining the euro.
Readers must bear in mind that applicant countries do not have the same right as other existing EU members to opt out if they so decide.
Although the issue at stake is not protectionist fear-mongering, as many tend to imply, the core issue we need to address is whether joining a single currency will threaten our fiscal sovereignty or not.
I believe that Malta stands to lose considerably should it decide to cede control of its economic policy to the European Central Bank.
The argument that membership of the European single currency will enhance our access to a larger market is based on a simplistic - and not simple - proposition.
So far hardly any economist has managed to prove the case that having a different exchange rate than that prevailing across most of the single market is a significant trade barrier.
Studies have failed to turn up any empirical evidence that a fixed exchange rate between two economies leads to an increase in trade. Most academic studies have found no relationship between trade patterns and exchange rate volatility.
A recent study by Rodney Thom and Brendan Walsh from University College, Dublin, who examined Ireland's decision to break the long-standing link between the Irish pound and sterling in 1979, found that there was no harm to trade between the two countries.
If anything, the volume of Anglo-Irish trade grew as rapidly after 1979 as it had in earlier years and by 1998 had reached three times its 1979 level.
For a fair assessment of our current situation we need to take stock of the percentage of our trade invoiced in dollars against that invoiced in euros.
For a country like Malta the difficulty of living with a one-size-fits-all Eurozone interest rate would be a stiff hurdle to overcome indeed. After all, no serious economist disputes the fact that economic convergence can never be perfect or permanent.
It is beyond dispute that the interest rate set by the European Central Bank is not suitable for all, or even a majority of the Eurozone members.
By contrast, with an independent monetary policy, countries like Britain have thrived.
The loss of flexibility over monetary policy brings with it a straitjacket, which we can ill afford to wear.
A recent PriceWaterhouseCoopers study found that the euro has so far failed to stimulate growth or integration in the Eurozone. The accountancy firm's study finds little evidence as yet that monetary union has boosted performance since the introduction of the euro.
If anything, it says, the economies have been less in synch in these four years than in the previous five.
The same study, which warns that an overly strict interpretation of the Stability Pact risks a double-dip recession in Euroland, states that Euroland's Growth and Stability Pact - introduced to support the euro - is proving deeply damaging.
Countries like Britain have found that since the launch of the euro their exports to the Eurozone - despite not being part of the euro - have grown faster than the Eurozone members' exports to each other.
Changes in international trade are making exchange rate volatility less important.
Many might be inclined to argue that things could change once the enlargement comes on stream. A quick look at the limited level of trade Malta has with the other EU applicant countries shows that this should have negligible effect on us, even if all the EU applicants had to join the euro as well as the EU itself.
Initially financial services operators and the UK Treasury itself had expressed fears that Eurozone countries would deliberately isolate the City in London by putting up barriers, but the passage of time has shown that the City has maintained its lead over other European financial centres since the launch of the euro.
It was Alan Greenspan himself - the chairman of the US Federal Reserve Bank - who had stated that the City was a 'sterling' place to do business, as well as that London had stayed on top despite the emergence of the euro.
One important lesson we need to learn from the experience of the City in all this is that the City does not need to be in the Eurozone to trade in the euro. If anything, it is quite the opposite. What matters is not proximity to markets, but creating the sort of business climate that attracts investment.
What any country needs to move forward - Malta included - is lighter business regulation, which attracts investment as well as a history of openness to foreign firms.
According to the Corporation of London, City institutions do not believe that the euro is an important factor in determining the success of the City.
The most important factors are:
¤ critical mass and concentration of skills
¤ revenue generation
¤ ability to conduct business with Eurozone clients.
What we need is a focus on fundamentals.
When UK businesses were asked which factors would have the greatest impact on them over the next ten years, exchange rates were not a significant concern.
One must recall that when the euro was introduced politicians had predicted that it would lead to lower prices, more jobs, and higher growth.
What actually happened is that there have been significant price rises, constant tensions over the Stability Pact and the single interest rate has led to lower growth and rising unemployment.
While drastic cuts in public services have had to be made to adhere to the rigid rules of the Stability and Growth Pact, growth has slowed almost to stagnation in Germany while being sluggish in most other Eurozone countries.
I have relied on the British experience, because given that Britain has nearly half the Eurozone rate of unemployment, faster economic growth and an excellent macro-economic framework, it would be a huge mistake to lock into the euro.