Magazine article Business Credit

The United Kingdom and the Euro:

Magazine article Business Credit

The United Kingdom and the Euro:

Article excerpt

Will It Ultimately Accede to a Single Currency That Will Launch a Challenge to the Dollar's World Dominance?

As I sit writing this article, I ponder upon the fact that it is exactly one week since the UK General Election, an election which saw a second landslide victory for Tony Blair's Labour Party against a background of the lowest percentage voter turnout since 1908--more than 40 percent of those eligible to vote did not trouble to do so--and a majority of 176 in a 659 seat House of Commons representing a reduction of just three from the almost identical landslide of 1997. The fallout has been swift and immediate. William Hague, leader of a Conservative Party that campaigned strongly on the tenet that this was the last opportunity for UK voters to save the pound sterling, resigned within hours of admitting electoral defeat, whilst Charles Kennedy, leader of a Liberal Democratic party which increased its number of seats from 46 to 52 and campaigned in favour of the Single Currency on the simple basis that it would be both cheaper for business to export goods and lower the cost of goods in the UK, claimed that he n ow led the only serious opposition party to Labour, a fact which the Conservatives--perhaps with some justification--will vehemently deny. But by far the most stunning aftermath is that from having been a subject that the Labour Party virtually kept under wraps during their campaign, the accession (or not) of the United Kingdom to the European Single Currency has now become the subject of intense debate in every present newspaper and television current affairs article. So, dear reader, let me attempt to give you an unbiased view of the UK and the Euro and its potential impact on the dollar. But first, I will set the scene with a potted history of the Single Currency.

Three eminent European politicians conceived the idea in the 1980s. The then President of the European Commission Jacques Delors, Helmut Kohl, Chancellor of Germany and the late Francois Mitterand, President of France shared the belief that a Single Currency would consolidate links between European Union Member States by creating, in their view, a more efficient market for goods and services, whilst raising the competitiveness of the participating economies. The establishment of the Euro generated fiery and emotive political debate for more than a decade, as did discussion of the economic criteria for membership, until January 1, 1999 when the European Single Currency was launched with the participation of eleven of the fifteen member states of the European Union, namely Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain. Having now met the economic criteria, these member states have subsequently been joined by Greece, leaving only Denmark--a referendum on joining having been defeated by a narrow majority--Sweden and the United Kingdom outside the Euro, the latter having assured its electorate that entry will only be undertaken as a result of a majority being in favour by referendum. It is interesting to note at this stage that whilst accession is the subject of hearty debate in a limited number of markets at the present time, those aspirant members of the European Union, such as the Czech Republic, Cyprus, Hungary, Malta, Poland, Slovakia, Slovenia and Turkey will generate intense political and economic discussion across Europe in terms of their ultimate fitness to join the Euro.

The unification of interest rates and the irreversible locking of exchange rates by all participating member states officially launched the Single Currency. Financial institutions changed over to the Euro on January 1, 1999 and (hopefully) an orderly changeover throughout the entire economy will be completed by January 1, 2002. On that date, European notes and coins will be introduced alongside national currencies and for the six months to July 1, 2002, goods will enjoy dual-pricing--already seen widely across Europe--at which point national currencies will no longer be legal tender. …

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