18 OCTOBER 1997, Page 32


AN ECONOMIST is someone who, con- fronted with a tin of beans, will postulate a tin-opener. In Ernst & Young's Item Club he finds a home from home. Its latest effort is to show — using, as it breathlessly explains, the Treasury's own economic model — that Britain should be a founder member of the European single currency. (A headline writer simplified this to 'Trea- sury model backs Emu entry'.) Naturally, that success requires a little postulation. Interest rates would have to come down from 7 per cent, where the Bank of Eng- land has set them to ward off inflation, to 41/2 per cent when we join. That, says the Item Club, would threaten a boom in house prices and in the shops. Never mind, let's postulate that we do away with tax relief on mortgages, and jack up the tax bill for local government by 10 per cent for two years running. The last time we jacked up the tax bill for local government, didn't we have riots in the streets? That would be outside the scope of the Treasury model. The Item Club also assumes that we should go in at an uncompetitive exchange rate. Our trade would be the worse for it, and so would the economy. Never mind, let's postulate that we should learn to grin and bear it. And if your aunt were to postulate transplant surgery, she would be your uncle.