Euro gains currency in the UK

Date: 01/10/1998

As the British Conservative Party prepares to unveil the results of its internal ballot on leader William Hague's policy towards the single currency, Tim Jones looks at how the debate on European integration has changed course under the Labour government.

JACQUES Delors once said that the British should be kept within the EU for one reason alone: their unusual willingness to discuss the rights and wrongs of European integration.

"They have the best journalistic debate, the best parliamentary committees and the best quizzing of prime ministers after a summit," claimed the former European Commission president.

But British pride should not get too inflated. Delors' comments say more about how long it has taken people in France and Germany to wake up to the constitutional and economic importance of construction européene than about the quality of the UK's debate over Europe.

Nevertheless, it is true that nowhere else in the EU are the very fundamentals of European policy debated so intensively.

Germans might get upset about their excessive contributions to the Union budget or the French about opening up their railways to competition, but where else but in the UK would the editorial pages of the country's best-selling broadsheet newspaper debate quitting the EU altogether and signing the North American Free Trade Agreement?

The problem for the ultra Eurosceptics, most of whom are in - or close to - the opposition Conservative Party, is that they are fighting yesterday's battles.

Ordinary members of the British public, according to the polls, have long since come to accept that their economy is integrated with those in continental Europe.

They fear that they will lose jobs and investment to a new 11-nation economic powerhouse to which they are now linked by a tunnel under the English Channel and by land across the Northern Irish border. They know, because they have been told repeatedly, that these 11 countries buy 48% of all British exports and provide 50% of its imports.

In recent surveys, 50% said they were still opposed to joining the euro-area now, but that was down from 64% two years ago. Even more interesting is how resigned people are to eventual membership: 70% think they will be using the euro by 2010.

The outcry last week over the European Central Bank's decision to drop the idea of leaving part of the euro banknotes free for a 'national symbol' underlined just how much times have changed.

"Bankers ban Queen's head from banknotes" and "It's off with your head, ma'am", screamed the newspaper headlines. But, like US President Bill Clinton's recent troubles, the 'news' was much more interesting to politicians and the media than to the public.

The British monarch has only been on the country's banknotes for the past 38 years. When notes were first introduced, royalty was so unpopular that the Bank of England would not have dared to display a regal head.

Michael Howard, the former interior minister who now speaks for the Conservatives on foreign affairs, tried to imply that the ECB's decision was just another example of creeping Euro-federalism. But interest in the story died away just as quickly as it had flared.

The attempts by Yorkshire millionaire Paul Sykes, a man who likes to drape himself in the Union Flag (meaning the UK), to launch a Democracy Movement to save the pound are also likely to fail.

Bickering over whether the single currency would kill off the UK's nationhood seemed all important when the Tories were in power, but now it is regarded as irrelevant by most people.

The nature of the euro-debate has been revolutionised since the Tories were ejected from power 17 months ago. In general, it is now conducted at a practical rather than a theoretical level.

Will the euro generate or destroy jobs? Will it protect European countries from global recessions? Would British membership lead to the surrender of too many of the government's budgetary powers?

The arrival of the Labour government, love it or hate it, has brought about this change.

The power to alter interest rates has already been handed over to the Bank of England and Finance Minister Gordon Brown has established five, mostly bogus, bench-marks against which EMU membership will be judged.

The first test, 'sustainable convergence' between the UK and euro-zone economies, is the most genuine of the entry criteria.

UK interest rates now stand at 7.5%, compared with the 3.3% rates with which the ECB is expected to launch the euro. Most economists believe this gap will only be narrowed, and the UK/euro-zone business cycles synchronised more closely, if the UK joins.

Brown already knows the answer to the other questions: the ability of the euro zone to attract investment and cope with outside economic shocks; its capacity to create jobs; and the impact of staying out on the UK's financial services. The first and second will be unmeasurable and the City of London is already complaining about the third. It wants to join now.

This would be fine by the government. Prime Minister Tony Blair has come round to the idea of joining for one key reason. When he talks about a 'third way', he is not simply indulging in his penchant for sound-bite slogans.

Blair does not believe that governments can spend their way out of recessions nor aggressively cut interest rates in favour of employment.

He is firmly convinced that those days are gone. In his view, and that of Brown, governments should keep prices stable and budgets balanced. In that general environment, people will find jobs if they are well-educated, appropriately trained and, above all, willing to take what is on offer.

So why not hand over monetary policy to the ECB and commit the government to balancing the budget by signing up to the growth and stability pact?

Unlike their predecessors, who refused to believe until the last minute that the euro would ever happen, the current government is getting ready for the new currency.

Brown chairs a special committee set up with Bank of England governor Eddie George and business leaders to coordinate preparations, and the inland revenue has agreed to allow businesses to pay value added tax and corporation tax in euro from January.

Even the Tory leadership has entered into the new spirit. The reason Sykes and his ultras have broken away from the party is that the debate within Conservative ranks is altogether too measured for their liking.

The debate in the run-up to the controversial ballot of party members, ordered by leader William Hague to win support for his view that the UK should stay out of euro-land for at least ten years, has so far been conducted on reasonable and non-nationalist lines.

Defending the policy, Conservative finance spokesman Francis Maude said a ten-year moratorium was a reasonable "planning horizon" for businesses and provided voters with the kind of certainty that Blair's 'wait and see' policy failed to do.

There is little doubt that Hague will win the policy mandate he is seeking when the results of the ballot are unveiled on the eve of next week's annual party conference.

But angered as the pro-European faction within the Conservative Party is by Hague's decision to force the issue to a vote, it can at least take comfort from the fact that today's party leaders now talk about jobs, investment and budgetary control, and leave Sykes et al to paint themselves red, white and blue.

Ironically, the most openly pro-European of political parties is becoming the most likely to put people off the whole idea of the euro.

At their annual conference last month, the Liberal Democrats, a traditionally centrist party which now outflanks the Labour government on the left, told the public that higher taxes would be needed to ready the country for EMU.

They agreed a policy of big tax hikes for home-owners and holders of supplementary pensions in a bid to cap inflation and remove the need for the high interest rates which are keeping sterling uncompetitive.

Not since the Italian government introduced a special tax to help the country qualify for EMU membership has a political party come up with such a vote-losing policy on the euro.

Major feature. The debate in the UK on Europe has moved on under the Labour Government, particularly in the context of whether the UK should participate in EMU.