Why UK’s euro referendum can no longer be avoided

Date: 13/02/03

By Dick Leonard

THERE will be a plethora of referenda in 2003, with at least nine out of the ten candidate countries consulting their electorates, starting with Malta on 8 March, and finishing with Latvia on 20 September. In addition, Swedes will vote on the euro on 14 September.

One referendum unlikely to take place this year will be in the UK, with many observers now believing that Tony Blair (prompted by Chancellor Gordon Brown) will back off from putting the euro issue to the test during the current parliament.

They may well be right - particularly about a vote in 2003 - but it is surely premature to conclude that the question will be put off until after the next general election, which could be as late as July 2006. To postpone the decision for as long as that - after all the past delays - would be a serious abdication of the British government's responsibilities.

It is, after all, committed to rule, within the next four months, on whether the famous five economic tests have been met, and if so to proceed to a referendum. The exact wording of some of these tests may lack precision, but the general meaning is clear enough, particularly of the most serious of the five, whether the British and eurozone economic cycles have converged to a sufficient extent.

Already nearly a year ago, the highly respected National Institute of Economic and Social Research conducted its own detailed examination of the five tests, based on an economic model with a good track record. Its conclusion was that the five tests had indeed been met, a finding that was corroborated in three other studies by PricewaterhouseCoopers, the Paris-based Organisation for Economic Cooperation and Development and London's South Bank University.

Since then, the convergence has continued, with a further reduction in the interest rates differential, and the pound moving much closer to an optimal exchange rate against the euro.

If the British Treasury's own judgement (which will in practice be dictated by Blair and Brown) is to have any intellectual credibility, it will not be able to conclude that the tests have failed. The least it could honestly say is that they have, substantially, succeeded, but that there are a few details on which a little more time would be needed before a definitive verdict could be made.

The government could then announce a further examination of the issue, perhaps by the end of this year, which would leave the way open for a referendum in 2004. Despite the British government's insistence, however, its hesitations have not been due to economic factors. It has been the stubborn persistence of a negative majority in the opinion polls which has given it pause.

There was some improvement a year ago after the ultra-smooth introduction of notes and coins in the eurozone, but it was not sustained, and the expected further bonus from British holidaymakers familiarising themselves with the euro last summer did not materialise.

The current state of public opinion is analysed by Roger Mortimore and Simon Atkinson, two senior executives of the Mori poll, in a pamphlet, Who are the Euro Waverers? (Foreign Policy Centre). They divide the public up into both 'hard' and 'soft' supporters and opponents of the euro, with the following result:

Strongly support British participation (16); generally in favour of British participation, but could be persuaded against it if I thought it would be bad for the British economy (23); generally opposed to British participation, but could be persuaded in favour if I thought it was good for the British economy (22); strongly opposed to British participation (39); don't know (7); support (39); oppose (54); waverers (45).

The authors conclude that euro supporters would "have their work cut out" to win a referendum, but would be able to do so if they won over about half of the 'soft' anti vote - a stiff but not impossible task.

Despite the opinion poll lead of the antis, the pros would - as in the 1975 referendum on British EEC membership when a large anti-majority was reversed - have one enormous advantage.

Their leaders are far more respected and more popular than their opponents. Tony Blair may have slipped a bit from his former heights, but is still way ahead of Iain Duncan Smith.

The waverers will not be won over by a 'wait and see' policy. There is no good reason to believe that they will have shifted their ground by 2004 - or even 2008 - unless there has been an energetic and sustained campaign to convince them that, far from being damaged, the British economy would enormously benefit from euro membership.

The best time to start such a campaign is now - or at least as soon as the Iraq issue is settled one way or the other.

The British economy is already suffering by its exclusion from the eurozone, and the damage is increasing month by month. One telling statistic is the loss of foreign investment, as it is increasingly being directed to enterprises situated within the eurozone.

The British share fell from 52 in 1997-1998 to 24 in 1999-2001, while a recent report by United Nations Conference on Trade and Development predicts it will fall to as little as 5.1 this year. Already last year, the Netherlands received more of this investment than Britain.

It is time that Blair and Brown faced up to the unpleasant fact that, while there will never be an ideal time to hold a referendum, the cumulative cost of delay is prohibitive. In retrospect, it would have been far better to hold an advisory referendum on the principle of entry during New Labour's honeymoon period after the 1997 election.

That opportunity was lost, as was another in 1999, when - as a transparent delaying tactic - the specious five tests were decided on. It will probably be more difficult to win a referendum now than then, but the question ought not to be avoided any longer.

No doubt, if the referendum were lost it would be a blow to Blair, but it would not be the end of the world. Much more damaging to his reputation would be if he were seen to have funked the challenge.