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Britain's Euro Currency Decision Set for June 9 - 2003-06-05


The British government is scheduled to announce Monday, June 9, whether Britain is ready to join the common European currency, the euro. The government has set five key economic tests to determine whether joining the euro would be good for the British economy.

On Monday, Chancellor of the Exchequer Gordon Brown will report to parliament on whether the British and European economies are sufficiently well aligned for the move to make sense. After a Cabinet meeting on the subject Thursday, Mr. Brown said the government will not do anything that would put British economic stability at risk.

"This has been a wide-ranging, detailed and comprehensive discussion. We are now in a position to announce our decision to the House of Commons on Monday," he said. "And I look forward to the debate in the country that will follow it. Everything that we will do in this matter will be in the national economic interest."

Mr. Brown has said Britain's "national economic interest" includes ensuring that joining the euro would increase employment, offer investment opportunities and secure financial services, and allow Britain enough flexibility to respond to the ups and downs of the European economy.

Britain is one of three nations that do not use the euro, of the 15 EU countries.

Prime Minister Tony Blair has said his government is committed to bringing Britain into the euro, but he has left the timing open, and most analysts in the media here expect Monday's announcement to be, in essence, "Yes, but not now."

The current slow growth in countries that use the euro appears to be a key factor.

But Professor Richard Layard of the London School of Economics says the rate of growth in Britain is no different than in the rest of Europe.

"Well, in the present year, the rate of growth of Britain is higher than the rate of growth of the European economy. But, if you take any reasonably long periods of years, like the last four years, there's no difference between Britain and the euro zone in terms of growth of income per head, nor is there if you take the previous 10 years," he said. "The European economy is a strong one, and the productivity, of course, and the living standards in countries like France, Germany and the Netherlands are something like 20 percent higher than they are in Britain."

Mr. Layard believes that although Britain is economically secure now, the future of Britain's economy lies with the euro.

"I think it would be very bad for the British economy if we don't join quickly, because the situation is no longer the same as it was before the European countries formed the euro," he said. "Before that, anybody who wanted to sell into the continent had to sell it across a currency barrier, if they were selling from some other country. Now, if you want to sell into the continent, you can produce anywhere within the euro zone, without having to cross the currency barrier and face the exchange risk involved, except if you're producing in Britain, outside the euro zone, in which case you still face the currency barrier. That makes Britain now a less attractive place in which to produce than it was before the euro was formed."

But at an organization called The "No" Campaign, manager James Frayne, says Britain's currency barrier is not significant, because Britain trades more with countries outside the euro zone, such as the United States.

"If you actually look at where Britain does its business, we actually invoice more of our trade in dollars than we do in euros," he said. "The euro has been incredibly volatile against the dollar, so you're not eradicating currency risk by joining."

Mr. Frayne says the costs of joining the euro far outweigh the benefits, and he fears Britain would have to give up too much of its power.

"Clearly, you're giving up control of your interest rates," he said. "You are going to be giving up control of your taxation, because you have to accept the rules of the euro in terms of tax and spend, which is the stability pact. You are also giving away vast amounts of democratic power over your economy."

"The benefits of joining in terms of trade, investment and growth far outweighs these," said activist Nick Canning from the organization, Britain in Europe. He says joining the euro is vital for Britain's future.

"We believe, Britain should join the euro, because it is in its national, economic interest to do so. We think, joining the euro would boost Britain's trade, Britain's investment, and therefore boost Britain's economic growth," he said. "We also think it would strengthen Britain's position in the world. In the modern world, Britain can't afford to be isolated. We're better off playing a leading role in Europe."

Some euro-skeptics in Britain worry that the expanding power of the European Union will eventually lead to the merger of today's European countries into one new country. They believe that possibility becomes stronger if Britain joins the euro. But pro-euro activist Nick Canning says such fears are unfounded.

"That's the idea that a single currency inevitably leads to a single state," he said. "There's no example in history of countries that have shared a currency that have then gone on to find - to become a single state. There's also no economic rationale for why sharing a currency means you suddenly have to share political institutions, and become a single country."

There is also a psychological element to joining the euro. France has given up the franc. Germany has given up the deutschmark. And other euro members have given up their longtime currencies, the lira, the peseta, the drachma and many others. But many people in Britain are not ready to give up the pound. In central London, software engineer Lee Brownhill says he is ambivalent about the economic issues involved in Britain joining the euro, but in his heart he is against it.

"A lot of it, I guess, would be just being used to the pound, the English Pound," he said. "The Queen being on the note, and I guess, yeah, from that angle, with, certainly with the sovereign being on the notes that, I think, forms some of our national identity, really."

Chances are Mr. Brownhill will not have to worry about losing that bit of British identity anytime soon.

The British government's long-awaited announcement on Monday is expected to be something of an anti-climax. Experts widely believe the government will say the time is not yet right for Britain to adopt the euro, although that remains its long-term goal.

In addition, political analysts say, if the government does not move on the euro now, it will not be able to do so, until after the next parliamentary elections, which must be held by 2006. And if the Conservative Party unseats Labor in that election, any British move to the euro could be postponed indefinitely, because the Conservatives oppose joining the common European currency.

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