Adoption Panel: When Should the UK Join the Single Currency? or Should It Join at All? Cathy Hayward Puts the Debate in Political Context and, on the Following Pages, Margaret and Ross Maynard Assess the Problems and Benefits Experienced by the Euro's Early Adopters, the Eurozone as a Competitor to the US-And the Likely Effects of Britain's Failure to Join the Party. (Cover Feature: The Euro Debate)

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As FM goes to press, the government has its sights trained on targets beyond Europe. The events unfolding in the Middle East are dominating the political agenda and the issue of whether Britain should join the single currency is being nudged towards the bottom of Tony Blair's and Gordon Brown's to-do list. But, as the following pages will reveal, to join or not to join remains a central and divisive topic in Britain's business community. Questions about the cost of entry, the benefits of a single marketplace and the loss of economic sovereignty mean that the decision to fall in line or to go it alone will have more far-reaching effects on UK plc than the crisis over Iraq.

Like his predecessor Sir Edward Heath, Blair sees Britain's closer integration with Europe as a personal mission. When Labour won the election in 1997 he pledged to hold a referendum on the issue when the economic conditions were right. In December last year he clarified his views in a speech in Cardiff: "For each British prime minister there is this dilemma: if we are anxious about Europe's development, is it best to hang back until the direction is clear, or is it best to participate fully in the hope of making the direction more our own?" He stressed that the latter option--"full participation"--was the one that he would be taking.

But, while Blair may be full of enthusiasm for the euro, the two most powerful economic decision-making institutions in Britain are packed with non-believers. Mervyn King, who succeeds Sir Edward George as governor of the Bank of England in July, is sceptical of the government's five economic tests for joining the euro. He has dismissed the idea that a sensible judgment can be made about the right exchange rate for joining the euro, claiming that "it is impossible to know. No one can really know. This is clearly one of the difficulties in making a decision of that kind."

And Gordon Brown's wariness about all things European is no secret. The chancellor has consistently poured scorn on Europe's economic record--poor levels of growth and rising French and German deficits--while claiming that the British economy is more aligned with that of North America.

Over the past few years Blair has tried to appease both camps with his wait-and-see approach, a policy with some precedent in the Anglo-European relationship. When the Treaty of Paris established the European Coal and Steel Community (ECSC) in 1951, for example, Winston Churchill refused to take part, arguing that the best interests of the British coal and steel industry would not be served by the agreement.

Out of the ECSC the European Economic Community was created in 1957 through the Treaty of Rome, but it wasn't until 1972 that Britain, led by the Heath government, signed up to that institution. And although the European monetary system--which allowed participating currencies to fluctuate within fixed margins through the exchange rate mechanism--was launched in 1979, it took Britain another 12 years to get involved. Less than two years after the UK joined this system, John Major secured an opt-out from stage three of economic and monetary union: the introduction of the euro.

Where Blair has parted from his predecessors is in trying to base the euro decision on economic, rather than political, factors. The judgment to join the gold standard in 1925, the sterling devaluations of 1949 and 1967 and the 1990 decision to join the exchange rate mechanism (and to leave it two years later) were in essence politically motivated.

But his political concerns in the Middle East mean that a euro referendum has become far less likely during this Parliament. Without the war on Iraq this country would now be gripped by referendum fever, but most of Blair's energy is being spent on convincing a sceptical public that military action is justified, rather than on convincing a sceptical public of the benefits of joining the euro. …