‘Outs’ wrestle with euro dilemma

Date: 08/07/1999

Six months into the life of the euro, a debate is raging in those EU member states which chose to remain on the outside over whether to join any time soon. But, as Tim Jones reports, the obstacles facing pro-euro campaigners are different in each country

ALL but a handful of the 83 million people left outside euroland at its inauguration feel just the same as they did six months ago.

Their ruling parties most certainly do not. Even before the euro landed, the British, Swedish and Danish cabinets and leading business executives feared an intangible loss of influence in European politics.

Now that the new currency is here, they cannot put their finger on a policy area where they have suffered from being a semi-detached European but they can almost taste their 'out' status.

The EU's incoming Finnish presidency is conducting an audit of the quality of the Union's economic policy coordination. Premier Paavo Lipponen was asked to do this by all 15 EU leaders at last December's summit in Vienna, but already he and his Finance Minister Sauli Niinistö seem to have forgotten who commissioned the work. "All they ever talk about is the Euro-11," says one 'out' monetary diplomat. "We already feel on the fringe of things.".

It is different for the Greeks, who know they will be in euroland within three years. UK Prime Minister Tony Blair and his Swedish and Danish counterparts Göran Persson and Poul Nyrup Rasmussen have no such guarantees.

Each leads a party divided by the issue of euro-zone membership and feels he cannot commit himself either way for fear of splitting his Social Democratic movement and, in Blair's case, giving the right a nationalist song to sing.

Rasmussen is stuck between a rock and a hard place. His pro-EU coalition partners, the Radical Liberals, are pressing the premier for leadership in favour of euroland membership, while influential anti-federalists in his own Social Democratic Party are militantly opposed.

Nevertheless, the government could appeal above the heads of the party if it wanted to take the risk. Danish supporters of euro-zone membership have maintained a steady lead in the polls ever since the new currency was created in January, although the proportion of those who would abstain has risen from 32% in January to 38% last week.

During the recent Euro-elections, the woman heading the campaign for the Radical Liberals said she would use her influence on the prime minister to persuade him to hold a referendum on euro-membership as early as 2001. And that influence is considerable: Lone Dybkjaer is also Mrs Rasmussen.

The chances of an early referendum and a vote in favour of membership are much higher in Denmark than they are in either Sweden or the UK. While the opinion polls show a strong potential 'no' vote, they also reveal that a clear majority of Danes believe their country "cannot afford to stay out".

Denmark, which is a member of the new Exchange Rate Mechanism - a system which assigns EU currencies a central rate against the euro and only allows them to fluctuate within a 5-30% band - is more closely linked to the euro zone than any other economy.

The Danish National Bank sets interest rates for no other reason than to maintain the krone's peg of 7.46038 per euro. This has meant that the fall in the value of the single currency abroad has been greeted positively in Denmark.

Unlike the British pound, which has tended to rise as the euro has fallen and rendered exporters even less competitive, the decline in the single currency's value has helped Danish exporters. Moreover, it has contributed to a recovery of confidence in Denmark's largest market, Germany. The Confederation of Danish Industries crowed last month that export competitiveness had improved by 0.5% in the first six months of this year due to the falling euro.

The chances are high that a referendum will be held in Denmark in 2001 and, barring the unexpected, won by the pro-euro lobby.

THE situation is Sweden is much less clear. Since January, opposition to EMU membership has hardened, with the latest poll from Statistics Sweden showing 36.6% of respondents to be against membership and 34.4% in favour.

Like the British, Swedes have reacted negatively to the falling currency, and the resignation of the European Commission tainted the whole integrationist project with scandal in this most northern of northern European countries.

The Swedish Social Democrats do not want to take a position for or against euro membership and nothing definite is expected before a party congress in autumn 2000. At that point, an election or referendum could be called for 2002.

The clincher in favour of joining, according to the opposition Christian Democrats, would be British membership. "When Britain joins, Sweden cannot stay outside; sooner or later the political price will become too high," says party chief Alf Svensson.

Although Sweden and Denmark are advanced economies playing host to bulky international firms, they pale into insignificance compared with the economic giant 30 kilometres off euroland's shores, the UK.

The speculation surrounding whether Blair is intellectually convinced that the UK should join the euro area is fascinating but irrelevant. The UK premier, who has shown repeatedly how little he knows about economics, is entirely agnostic as to whether the euro will suit the UK or not.

The debate within the Labour Party - the only one that matters for now despite the opposition Conservatives' obsession with the issue - is all about two things: the subterranean but never-ending power struggle between Blair and his 'friend' Finance Minister Gordon Brown, and the premier's desperation to be Europe's man of destiny.

Blair has come to believe that he will never be a real 'player' unless he is taking a leading role not just in the EU but in euroland as well. London market analysts are now predicting that a referendum to take the UK into euroland might not be held before 2004 because, they say, the polls are against entry and the recent Euro-elections show the groundwork is nowhere near completed.

But nobody should ever underestimate Blair's ferocious ambition. He wants to be remembered as the man who brought peace to Northern Ireland and led faint-hearts in Washington, Bonn, Paris and Rome to victory in Europe's first-ever ethical war.

Politically, he wants to be the EU's next giant; the new Helmut Kohl to whom people come when they want something done. Economically, he wants to be Europe's Bill Clinton. When the EU's economy turns into a growth and jobs-machine to emulate the US' post-1991 performance - a prognosis now shared by American economic guru Lester Thurow - Blair wants to be riding the new European tiger and soaking up all the applause just like his pal Bill.

Blair believes this prize will only be his if the UK joins up. But he knows that Brown is playing a clever game of sitting out the phoney war and letting the referendum become 'Tony's confidence vote'.

So careful is Brown that, over the past month, he has swapped use of the word 'euro' for 'EMU' to avoid associating his light brogue with a seemingly failing currency. If Blair stakes all on the referendum and loses, his friend will pounce.

For this reason, Blair is keeping his head down and using his closest political ally, former Trade Minister and fixer Peter Mandelson, as his pro-euro outrider. The 'prince of darkness' appeared from nowhere two weeks ago to make four keynote speeches advocating early euro-zone membership. Every one of them might as well have had 'Made in Downing Street' stamped on them.

The European Parliament elections, which saw the opposition Conservatives wipe the floor with Blair's candidates, confirmed the fear of many pro-euro British politicians that a referendum is unwinnable. However, what they forget is that the pros' campaign has not even begun.

The first real shot of the pro-euro offensive was fired only last week when British Airways chairman Colin Marshall warned that failure to join the euro zone could cost a million jobs. This figure was, of course, conjured out of the air. But once British workers, whose jobs are the least protected in Europe, start to hear veiled threats from other FTSE-100 chief executives and union bosses, the polls will undoubtedly start turning.

Six months into the life of the euro, a debate is raging in those EU Member States which chose to remain on the outside over whether to join any time soon. But the obstacles facing pro-euro campaigners are different in each country.