Letter: European interest rates

Sir: People may be baffled by the European single currency but the debate on this important issue is not enhanced by the naive comments of David Vigar, Director of Communications, of The European Movement (Letters, 9 May).

He suggests that few people are aware that British interest rates would be lower if we were part of a European currency. Mr Vigar can't make this assertion. True, Germany has lower interest rates than Britain. However, the European interest rate (from 1999 onwards) is not going to be governed by German interest rates alone, but by the average of countries who join.

Furthermore, Mr Vigar should be aware it is real interest rates that matter. Germany has lower rates because it has a lower inflation rate, and an economy facing far more problems. In real or inflation-adjusted terms, long-term interest rates in the UK are broadly the same as Germany. Real short-term rates are higher in the UK, but that's only because the authorities in this country don't want (or need) them any lower, whereas the Germans are desperately driving their rates down to combat recession and rising unemployment.

Graham Turner

Chief Economist

Tokai Bank Europe

London EC2