Friday, January 23, 2009

News Analysis: Are Britain's hopes to join euro dashed?

by Dongying Wang

LONDON, Jan. 22 (Xinhua) -- With the rapid depreciation of the once strong British pond against euro in the recent years and the uncertainty of the country's economy in the face of the ongoing global economic downturn, an urgency has come for Britons to join the euro but the chance might slip through their fingers due to their persisted reluctance.


"The euro has become increasingly a candidate for the status of a reserve currency alongside, or in substitution for the dollar," Lord Lea, an economist and life peer of the House of the Lords told Xinhua.

"Familiarity with the euro is now self-reinforcing in Africa, Asia, Latin America as well as in the OECD area," Lord Lea said, adding "The pound is nowhere by comparison."

It is widely believed that at the worst point, investors will give up all but four big global currencies: the dollar, the euro, the Japanese yen and the Chinese yuan. In that case, Britain will see no way out, he added.

Euro membership has returned to British agenda. It comes on the10th anniversary of the launch of the European single currency, which has been adopted by 16 of the 27 European Union member states.

Since its introduction in 1999, the euro has been the second most widely-held international reserve currency after the U.S. dollar. The possibility of the euro's becoming the first international reserve currency is now widely debated among economists.


Despite the euro's 10-year success, skepticism towards the currency has not diminished in Britain. The strength of the euro has yet to draw Britain closer to the continent. A majority of Britons are still adamantly opposed to joining the euro, arguing that keeping monetary autonomy would benefit the British economy.

A latest poll has showed that 70 percent of Britons still reject the euro, up from 55 percent in 2005.

The big challenge for Britain in adopting the euro is to get a referendum passed, said Lord Lea, who was a member of the British Treasury Advisory Group on the euro. In many of the states which have adopted the euro, there was no such a referendum.

"If we had had the chance of a public vote to join the euro or not in Germany, I am absolutely sure, we would have kept the Deutsche Mark rather than switching to the euro, "said Professor Ralph E. Hartleben at University of Applied Sciences, in Weiden inder Oberphalz, Germany.

"The pound's long history, and heritage as part of British identity are the main reasons for Britons rejecting the euro," said Hartleben, adding "If I were British, I also would like to stick to the pound, as in Germany the euro has nearly doubled all prices."

Lord Lea expressed understanding for Britain's nostalgia of the pound. "However it is the reality that Britain, as an EU member, functions within the regional policies and systems," he said.

He insisted it's at the EU level that Britain can make the quickest process in securing accountability and taxation transparency of multinational businesses, including multinational banks and associated new financial instruments.


Being hit hard by the downturn, Britain has been warned of expecting a difficult year ahead, and a 2.9 percent shrink in GDP in 2009.

Lord Lea believes that Britain's gloomy economic outlook will lessen the opposition to the euro entry in the coming five years. Instead of suggesting an exact time for Britain's adoption of the single currency, he stressed the policy of "not wait and see," but "prepare and decide."

Lord Lea, who was vice president of the European Trade Union Confederation, restated the point made in 1999 by the British Trades Union Congress that if the euro entry delay persisted for a period of years, Britain would become less attractive for inward investment.


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