If you are interested in economics, and would like to read articles by someone who has a giant intellect and feet on the ground, then buy the Financial Times and seek Samuel Brittan.

I guess that, overall, Mr Brittan is my all-time favourite writer of economics articles. His writing is clear and he takes an original angle, often with a cool humour.

As to academic papers in economics, the most beautiful, in my opinion, are those short ones by Robert Mundel, the Nobel laureate for economics in 1999, who developed the concept of the optimum currency area. Logic shines through his papers. You will search for that one superfluous word in vain, and his style is authoritative, much like Edward Gibbon's as he describes the decline and fall of the Roman Empire.

On March 28, 2002, Mr Brittan had an article in the FT entitled "Keep floating, stop worrying." In it he argues, in a nutshell, that since Britain has a floating exchange rate, it need not seek to adopt the euro for stability.

He starts by saying that those who oppose Britain's joining the euro should not do so because of "generalised hostility" towards the continent but rather should make the positive case that Britain should stay out in order to continue to benefit from its floating rate regime, which it would not be able to if it joins the euro, thus the title of the piece. By all means, let the euro in as a parallel currency but do not do away with the floating pound.

He continues that a fixed rate regime produces two problems: first, the threat of a balance of payments crisis and runs on the currency and, second, the possibility of unemployment due to money wages making goods and services uncompetitive. He states that once a country joins the euro, it would be no more possible to adjust the exchange rate "in the eurozone than it would be now for Yorkshire and Lancashire."

Brittan points out that the first of these problems could be solved by having a floating rate regime or by joining the euro but the second problem would not be solved by joining the euro.

I would here like to apply Brittan's argument to the local context but, before I attempt to do so, I would like to go briefly through the economics involved.

Back to the economics. With a floating rate, international demand and supply conditions impact on the value of a currency and this price adjustment corrects imbalances in international payments. If the value of a currency falls, imports seem more expensive while exports become more competitive. Imports fall and exports rise and the economy is pushed towards a balance.

At the same time, if holders of the currency no longer wish to hold it, they convert it into other currencies and the value of the currency will fall. There is thus a self-adjusting mechanism: the market always adjusts so long as it is free.

If a country becomes a member of the European Monetary Union and adopts the euro as its currency, then, of course, this first problem is also "solved" because there is no currency to make a run on.

If there are imbalances in the demand and supply conditions for the goods and services of a particular country in the eurozone, then the first part of the first problem partly manifests itself in the form of the second problem.

There would be no imbalance of payments and no run on the currency but, with the value of the euro being what it happens to be, the goods of a particular country would just become uncompetitive, exports would fall while imports would stay the same or even increase, as people in the area buy cheaper goods from other eurozone areas.

There is here no adjusting currency to take the pressure off. The adjustment would have to be through wages, which would have to go down, and that's notoriously difficult and painful especially in places dominated by workers' unions.

It would be painful because the voluntary acceptance of lower wages are likely to be rejected, business would be lost, unemployment would shoot up and only then, in deep recession, can wages go down via new enterprises and new recruitment.

There is, therefore, much to commend floating rates: exchange rates would reflect all known information, react to demand and supply, they would adjust, do so quickly, "painlessly", and instantly affect the whole economy.

The reason a one-currency regime works in the United States but maybe not in Europe is because in the former most resources are geographically mobile. I am not sure Europe can withstand the sort of mass migration which the United States has witnessed in the past.

European monetary union is really still an experiment, conducted in relatively benign times, whose robustness is still open to question. I am sure that if Steinbeck was writing in Europe, his "Grapes of Wrath" would be very much different.

Be all this as it may, we do not have a floating rate regime for the simple reason that we are too small to go up on the roof and face the winds. Instead, we have an exchange rate which is pegged to a basket of currencies. Once sterling joins the euro, then our basket would consists of the euro and the US dollar.

In my opinion, our pegging to a basket has served us rather well. There are arguments, of course, as to the weighting of the different currencies, for example, as to whether the weightings should have an export trade orientation, or be more oriented towards imports, or somewhere in between.

With a floating lira being little more than a pipedream, if and when we have to come to a decision as to whether to join the euro or not, our background would be diametrically opposite to the one Brittan is discussing on Britain, and it is because of this contrast that I was struck by the relevance of the article to us.

We would not be abandoning a floating rate regime but a peg to a basket in order to adopt a new currency.

At this stage two things come to mind. First, with our present regime, the euro and other currencies influence the value of the lira. This would no longer be the case if we adopt the euro. The implications of this would have to be put in the context of our trade patterns then, which might contain a higher EU content.

Second, we would no longer have control over interest rates but would have to live within the exchange and interest rate scenario which the euro brings along. Our, and other EU countries', rate of adjustment would then depend on how free resources actually are to move around the EU.

While what is an optimum currency area (the area where it is feasibly optimal to have one currency) is sometimes defined in terms of political authorities, geographical proximity, or even demographic distribution, the really critical elements are freedom of movement of resources.

This brings us back to the work of Robert Mundel.

(Those who want to read Samuel Brittan's article can drop me an email with their address and I can send them a copy. For those merely curious as to how the article continues: Brittan then takes a look at the rate at which sterling might possibly enter the euro, past crises of sterling, how his thinking about floating versus fixed exchange rate regimes changed and developed over time, arguments of the left and the right on globalisation, and optimum currency areas.)