Tim Leunig, Nesta’s chief economist, floated a plan to cut the UK’s borrowing costs by issuing euro‑denominated debt. He argues that interest on euro notes would mirror France and Italy, tightening the gilt market and lowering rates. The idea sounds attractive, but it ignores the UK’s entrenched high rates and weak pound.

The proposal fails under the current monetary regime. Structural factors—persistent inflation, twin deficits, high debt‑to‑GDP, sluggish growth, low productivity, and political churn—keep UK rates above peers. Euro‑denominated notes would still command a real yield matching gilts, meaning higher rates unless fundamentals shift or the GBPEUR appreciates. Markets already price in a medium‑term risk of higher inflation and a weaker pound.

Leunig’s idea resurrects a failed exchange‑rate targeting model, echoing the 1992 ERM exit and Black Wednesday. Even if the Bank of England ceded monetary policy to support the pound, euro debt would expose investors to currency risk and force the government into tighter fiscal discipline. The proposal merely revives a policy that has collapsed before, offering no new safeguard for the UK economy and risk a currency crisis.