No part of this digital document may be reproduced, stored in a retrieval system or transmitted in any form or by any means. The publisher has taken reasonable care in the preparation of this digital document, but makes no expressed or implied warranty of any kind and assumes no responsibility for any errors or omissions. No liability is assumed for incidental or consequential damages in connection with or arising out of information contained herein. This digital document is sold with the clear understanding that the publisher is not engaged in rendering legal, medical or any other professional services. CURRENT POLITICS AND ECONOMICS OF EUROPE Volume 17, Number 2, 2006 SPECIAL ISSUE ON BRITAIN AND CANADA AND THEIR LARGE NEIGHBORING MONETARY UNIONS, PART II Guest Editor: Amy Verdun CONTENTS Introduction to Part Two: “Britain and Canada and their Large Neighboring Monetary Unions”: Is it all Politics? iii Amy Verdun To Join or Not To Join: Canada, Britain and the Politics of Monetary Union 171 Eric Helleiner The Domestic Politics of British Policy on the Euro 193 David Howarth North American Monetary Union: A United States Perspective 219 Benjamin J. Cohen Dollarization or a North American Common Market? Reviewing the Options for Canada 241 Alvaro S. Pereira ii Contents The “Tyranny of Geography” and “Contingent Neoliberalism”: Canada’s Currency Debate in Comparative Context 263 Paul Bowles What Can We Learn From The EMU Model? Lessons for Canada and Britain 289 Mario Seccareccia and Mathieu Lequain Would Monetary Integration with the United States Threaten the Canadian Social Model? Insights from European Monetary Unification 317 H. Tolga Bolukbasi Nova Science Publishers, Inc. New York Current Politics and Economics of Europe ISSN 1057-2309 Volume 17 Number 2, pp. iii-vi © 2006 Nova Science Publishers, Inc. INTRODUCTION TO PART TWO: “BRITAIN AND CANADA AND THEIR LARGE NEIGHBORING MONETARY UNIONS”: IS IT ALL POLITICS? Amy Verdun1 University of Victoria Britain and Canada each are located next door to a large monetary union. The Brits are faced with the euro that is floating freely as legal tender in twelve Member States (and this number is rising). Canada’s southern neighbor is the United States (US); the elephant whose currency is circulating not only in that federation but also in many other sovereign states further to the South and in many other nations. To make the comparison is of course academic. There is not a strong advocacy coalition, in Canada or elsewhere in North America, calling for a North American Monetary Union (NAMU) or a North American currency. As we have seen from the discussions in the first part of this two-part special issue, there have been calls for the creation of the ‘amero’ but they did not find sufficient political support to gain momentum. By contrast, the option in the United Kingdom (UK) to join the eurozone is a real one. The European single currency is a reality that – if the political will is there on the part of the government and its citizens – the UK can join. Though the differences between the two countries are profound, we think it is attractive to study the reasons behind the similarities and differences between the Canadian and the UK cases. Why is Canada not seriously interested in integrating 1 The author is Professor of Political Science at the University of Victoria. Address for correspondence: Po Box 3050, Victoria B.C. Canada, V8W 3P5, email: [email protected]. The author wishes to acknowledge financial support from the European Commission and from the Social Sciences and Humanities Research Council of Canada (SSHRC). iv Amy Verdun more closely with the US or other states located on the American continent? Why are the UK government and citizens skeptical of the European single currency when so many of their counterparts on the European mainland are pleased to be part of the eurozone? What economic and political reasons explain the policies we see in both countries? Under what circumstances might their respective stances on the issue change? The first part of this two-part special issue examines the main issues ranging from an overview of the issues (Verdun, Padfield and Young) to a review of the Optimal Currency Area literature (Willett) to an assessment of the UK tests for the euro (Artis) and various articles that examine the case of Canada from various perspectives (Laidler, Schembri, Grubel and Crowley). This second part of the two-part special issue turns to a number of different aspects of these questions, which in many ways emphasize the deeply political nature of these decisions. Helleiner shows Canada’s recent history and experience with exchange rates and takes those insights to reflect on the British case. Howarth offers an analysis of the British government’s stance not to move on the issue of the euro, and traces much back to the domestic setting and factors within government leadership. Cohen offers an analysis of what the US perspective is on these issues. He stresses that the US hegemonic position allows it to dictate the rules, and not share sovereignty (i.e. not pool sovereignty); thus making NAMU unattractive to the Canadians. Pereira examines systematically what options Canada has. Bowles moves the focus ‘Down Under’ and examines what lessons can be drawn from the Australian experience. Seccareccia and Lequain as well as Bolukbasi each in their own way look at how Economic and Monetary Union might have repercussions for adjacent policy-making areas, such as social welfare states. They ask the question what lessons one can draw from the European experience in this realm if one juxtaposes it with the case of Canada, even though the latter in many ways is not in the same situation as the EU countries are (and thus Britian is). This second part of the special issue addresses many of the political economy questions that are raised when one assesses the exchange rate regime chosen. But many of these contributions go a step further so as to include various political factors that sometimes get left out in pure economic assessments of such a choice of regime. It will not have gone unnoticed that Canada and the US share many things (language, some historical heritage and culture, a long border, much of the economy is intertwined – in 2004 more than 75 percent of Canadian exports went Introduction to Part Two v to the US2). In fact, the Canadians have very few things that they can point to so as to differentiate themselves clearly from the US. How many Canadians can truly see their lives as independent from the US? Or which sovereign state does not have its own international telephone country code? Thus, currency, and the ability to influence one’s own monetary policy is important for more than pure economic reasons. The Brits do not need to be as concerned as the Canadians about the state of identity if the pound were to be given up in favor of the euro. Without the pound the British people can still find a large number of symbols that clearly distinguish them from their neighbors (language, some historical heritage and culture, a watery border that divides them, and the economy is only moderately intertwined with that of the EU – in 2003 just over fifty percent of British exports went to the EU3). Of course the key issue is that the political system and the balance of power are fundamentally different in North America than in the European Union. With the European Union in a state of near-crisis over the Constitutional referenda debacle and the Canadians not even talking about NAMU or fixing exchange rates, we are perfectly aware that this topic will not be picked up on in the near future by journalists, the general public or the governments in these countries, unless a major event occurs that pushes the issue onto the agenda. However, paraphrasing David Laidler who said during the October 2003 conference at the University of Victoria, where these papers were first presented, “Although no one seems to be interested in this topic at the present time, nor will they likely become interested in the near future, that does not seem to be a reason why we should not spend some valuable academic time discussing the issues.” In fact, we hope these academic contributions will be read and commented on if and when interest in this topic picks up again. Seen that our conclusion is that whether or not to join a monetary union is highly political, we are convinced that the time 2 “Sixth Annual Report on Canada’s State of Trade”, Department of Foreign Affairs and International Trade, Minister of Public Works and Government Services Canada, Spring 2005, ISBN 0-662-40077-1-5. 3 Department of Trade and Industry, International Trade for Europe and World Trade, http://www.dti.gov.uk/ewt/uktrade.htm#annex, 2005. vi Amy Verdun will come in which these issues are once again hotly debated. At that point we hope students and scholars will re-read these articles and learn some important lessons from this study. Current Politics and Economics of Europe ISSN 1057-2309 Volume 17 Number 2, pp. 171-191 © 2006 Nova Science Publishers, Inc. TO JOIN OR NOT TO JOIN: CANADA, BRITAIN AND THE POLITICS OF MONETARY UNION Eric Helleiner1 University of Waterloo The birth of the euro in 1999 was an important monetary development not just for Europeans. It also generated new interest in the idea of regional monetary unions elsewhere in the world. Indeed, many analysts predicted that the world would soon be divided into giant currency unions. National currencies were said to be passé and predictions were made countries around the world would increasingly be forced to choose to join one monetary zone or another (e.g.