Great Britain`s reaction to the euro

Great Britain’s Reaction To The EURO

By Gabriele Enders

A) General information about the euro

In February 1992, the Member States of the European Union agreed upon the introduction of a common currency by signing the Maastricht Treaty. The further timetable, as well as the name `euro' and its official sign ( ) were defined in December 1995. The change-over in those countries that introduced the euro on 1st January 1999 can be divided into 3 steps:

The first step was taken in May 1998, with the decision by EU governments as to which countries qualify to join the first wave of the currency union and by establishing the European Central Bank (ECB) later that year. The second step which is frequently designated as `transition period' started with the legal fixing of conversion rates between currencies of participating countries and the euro which was held on 1st January 1999. At this date euro became the legal tender in the countries of the so-called `eurozone' and exists in parallel to the national currencies until 31st December 2001. But during this period euro banknotes or coins are not yet available, "so national banknotes and coins are used for all cash transactions."¹

The official introduction of euro banknotes and coins in the participating countries will open the third and final step - also known as the `dual circulation period' - of the change-over. "They will circulate alongside national currency banknotes and coins", which will be withdrawn from circulation by the end of this period.²

The European countries which adopted the euro from the outset, called `ins', mostly hope for advantages in trade because currency exchange costs will be dropped. Besides, enterprises will no longer have to face the risk of exchange rate fluctuations.

Experts expect that prices will reduce once they become comparable in the different countries. With the Economic and Monetary Union (EMU) the European Union wants to strengthen its economic position in the world, while securing stability, prosperity and peace in Europe. But in spite of all these arguments there are still some uncertainties, and many critics fear a downswing, resulting in higher unemployment figures. Moreover growing disparities between `rich and poor' European countries might emerge, that would have to be balanced by extensive payments.³

One country that is not quite convinced of the great advantages of the single European currency, and did thus not join the first wave of the currency union, is Great Britain. Although it would have fulfilled all convergence criteria of the Maastricht Treaty, the country is not compelled to join the single currency. It obtained an `opt-out' clause (n° 11) which is annexed to the Maastricht Treaty, allowing the country to choose if and when it wants to adopt the euro.⁴

But in this respect, the politicians, business leaders and voters disagree.

Among them are `Europhiles`(pro-euro) and `Europhobes'(anti-euro), who have very different ideas of if, when or why Great Britain should join the single currency.

B) I. Great Britain`s attitude towards Europe and the euro

1) Labour Party

Regarding the euro, the Labour Party pursues a `wait and join'- policy. It supports the idea of joining the single currency in principle, if that is in the national economic interest of Great Britain. Since this is not yet the case, the party considered it better not to participate in the currency union from the beginning. Instead it preferred to wait, to observe the euro`s development and to join at a later date, always emphasizing that the final decision would be an economic - not a political - one.

Chancellor Gordon Brown declared in his statement on EMU on 27th October 1997 that it was necessary for the UK government and business to prepare intensively during this Parliament (change-over plan), so that Britain would be in a position to join the single currency, should it wish to, in the next Parliament.⁵

In this way the Labour government manages to leave its options open and does not commit to a certain policy concerning the euro. But within the Labour Party members are divided on the euro-policy, e.g. Robin Cook, the Foreign Secretary, never made a secret of being in favour of the euro while other members are rather cautious. Gordon Brown created a set of five economic conditions and declared that those would have to be met before the government takes the introduction of the euro in Great Britain into consideration. If the government was then of the opinion that the country should join the euro, the people would have the opportunity to vote in a referendum, and thus finally deciding whether the euro will be introduced or not.

Experts assume that this referendum will be held shortly after the next general election. To convince the public to vote to its liking, the Labour Party started a `pro-Euro(pean)-campaign'. It mainly concentrates on reversing the hostility towards the EMU and Brussels that many Britons still show, and on convincing the people of the values of a British membership. The Labour Party takes the view that there is only a future for Great Britain as a part of Europe, and that the country has to be freed from its isolation which is resulted from the preceding Conservative government's actions. Britain's position is in the centre of Europe because only there it can increase its political and economic influence, and finally take a leading position. But in order to achieve this aim, Great Britain has to join the single European currency - sooner or later.⁶

It is exactly this last term which the Labour Party uses in order to dodge a precise and clearly defined position on the question as to when the euro should be introduced. The government handles this topic very cautiously and, in this way, neither runs the risk of breaking with the eurozone-countries - the so- called `euro 11' - nor with its supporters in Britain, no matter if they are industrialists, businessmen or common voters.

2) Conservative Party

The tactics of the Labour Party are very often criticized especially by the opposition party, namely the Conservatives. They accuse the members of the Labour Party of pursuing a "sitting on the fence line"⁷ and call on them to muster the courage to decide on a lucid position, to argue for it and to maintain it consequently. They reproach the governing party for fudging a clear decision on the euro, because of its fear that either Brussels or parts of its electorate might lose faith in Labour politics. Furthermore, the Conservatives claim that disadvantages for Great Britain would not arise from staying out of the single currency, but from the hesitating policy of the Labour Party.

Unlike the government, the Conservatives state clearly that they rule out joining the single currency during this and the next Parliament, because one will not be able to assess how serious the risks of joining the euro will be, until some time after it is introduced in 2002. But the party gave no further details about their intentions for the time after the next Parliament. Considering the fact that a conservative party usually fights for the maintenance of the country's national identity and independence, it is hardly conceiveable that they would ever agree on the abolition of the pound.

After long years of having oriented rather by the U.S. than by Europe, the Conservatives

are still suspicious of the European Union (EU) and of its different institutions that work supranationally. They demand to alter the EU's core treaties to allow all member states to opt out of any parts to which they object.⁸ But since it is quite impossible to get this intention through, it is rather likely to cause a greater separation between Britain and the rest of Europe, especially the countries of the eurozone.

William Hague, the leader of the Conservatives, emphasizes that a joining of the euro would contain serious economic risks, and that Britain's interests are best served by keeping the pound. Otherwise the country would become a small part of a "United States of Europe"⁹, and conditions which might not tally with the national interests could be pressed upon it by Brussels. Mr Hague takes the view that Great Britain, with its flourishing economy, which is the fifth biggest in the world, is strong enough to survive without the single European currency. Besides, the leader of the Conservatives proclaims that saving the pound appeals to the majority of the British voters and should for this reason not only be the aim of his party, but also the aim of the present government.

In order to demonstrate that Great Britain would have a better future if it kept the pound, William Hague set up the `Policy Commission on the Pound Sterling', to analyse the possible impacts the introduction of the euro might have on the country's economy. The commission was chaired by Sir John Nott, a former Tory Cabinet minister, and also included some other former Tory members, but claims to have worked independently of the Conservative Party. Finally, the commission came to the conlusion that joining the euro would be detrimental to the country`s economy, and that "keeping our currency, and with it our economic independence and competitiveness, is in fact the key to Britain's prosperity in a new age".¹⁰ As a result, William Hague demanded the Labour Party to stop its change-over plan, and with it the useless waste of taxes.

But this hostile line towards the euro was not endorsed by all members of the Conservatives, which led to serious conflicts within the party.

More and more, even leading and influential members disapproved of their party's euro-policy. The best-known of those members are Kenneth Clarke, former Chancellor of the Exchequer, and the Tories' former Deputy Prime Minister Michael Heseltine who founded the `pro-European' Conservative Party and rather sided with the policy of the Labour Party claiming that staying out of the single currency for too long would be disadvantageous to Britain. Furthermore, he claimed that the Tories might find themselves in conflict with the business community if they maintained their dissaproving attitude towards the euro. Surveys on this subject confirmed Mr Heseltine's claim, showing that 75% of company directors believe such a conflict was likely if the Conservatives continue to reject the euro.¹¹

3) Economy

Consequently many of the Tories' traditional business supporters back Mr Heseltine's euro-policy, since most businesses are in favour of the single currency.

A poll on this subject showed that almost two-thirds of Britain's economists take the view that the country should join the euro within the next five years, assuming that otherwise their companies' prospects might be damaged.

Especially the exporters urge the government to prepare for the introduction of the euro as quickly as possible. Otherwise they would have to fear declines in their outputs, since interest rates as well as exchange rates are higher in Great Britain than in the eurozone-countries. If Great Britain refuses to adopt the single currency, these figures will not decrease and exporters might suffer from a declining demand for their products. Considering that the countries of the eurozone buy over 50% of British exports, this is likely to happen.¹²

Many large-scale enterprises, such as the oil combine `BP' and the department store chain `Marks & Spencer', already declared that they would use the euro as soon as it is available.

However, the Confederation of British Industry (CBI) published a survey which showed that the approval of the monetary union strongly depends on the size of the company. Small and medium sized firms disagree much more to joining the euro than blue-chip companies, because of the costs arising from conversion to the euro.

While 64 % of firms with as many as 500 employees agree to the introduction of the euro in Great Britain, the percentage of firms with as many as 50 employees is only at 43%.¹³

Although the advantages of the single currency are obvious for the majority of economists, there are still some who do not share this opinion. Those founded the anti-European group `Business for Sterling', which stands up for keeping the pound. They state that due to steady growth, low inflation and dropping unemployment figures, Great Britain should not join the euro during this, nor the next Parliament.

4) The voters

This view is also shared by the majority of British voters, namely 62%, who are rather `Europhobes'. Although they are not necessarily against the existence of the euro, there is considerable scepticism about Britain joining. They fear that Britain could lose its sovereignty, as well as its economic independence. They remain very distrustful of the EU and its regulations, let alone the common European currency. The idea that decisions affecting Great Britain and its people might be made by European Union institutions is horrible for most Britons, who demonstrate the most negative attitude towards the EU of any of the 15 member states.

The fact that Great Britain is an island located rather on the edge of Europe, and thus isolated from the continent, led to a specific self-confidence and national pride of its inhabitants. The country's glorious history as the British Empire also did its bit to that since "one century after the climax of the Empire, nostalgia for this image has not entirely departed".¹⁴ The fact that Britain was, among other things, the dominating colonial power, and ranked among the victors of both World Wars, created a feeling of superiority in the country that partly exists to the present day. The Britons also developed characteristic peculiarities which might give one the impression that they try intentionally to stand out against the rest of Europe. To mention only a few, they drive on the left side, close pubs at 11p.m., have a very special sense of humour, defiantly chew British beef and love their Queen.

Incredible as it may seem this is a reason for euro-scepticism that is not to be neglected. Especially tabloids such as `The Sun' agitate against the single currency on the lowest level of nationalism. When the ECB decided that the euro bank notes should bear no national symbols, meaning that the queen's head would disappear from the currency, the euro-sceptic press saw this as proof of Europe plotting against the British.¹⁵

The fact that the attitude of a newspaper often communicates itself to the readers is reflected in surveys which showed the social status and occupation are strongly connected with the different opinions concerning the euro. Among white-collar workers, 27% are in favour of the euro. Among blue-collar workers, most of whom read tabloids, the percentage of those who approve of the single currency is only at 13%.

The British opposition to the euro also stems from serious lack of information. A poll showed, for instance, that just 26% of the public felt they understood what the euro was all about. Furthermore, only 46% of British voters know that the common European currency will be called 'euro', while 19% mentioned another name and 35% did not know the name at all.¹⁶

But there are also some British voters (28%) who support the idea of joining the euro. More and more people recognize that the British membership of the monetary union will finally be inevitable. This is also the opinion of the government, although it admitted that there were "formidable obstacles"¹⁷ to Britain being in the first wave of the currency union. Both political and economic reasons led the government to the conclusion, that Great Britain should not join the euro from the very beginning.

II. Reasons for Great Britain not joining the first wave of currency union

1) Political reasons

One grave political reason was the voters` predominant negative attitude towards the common European currency. If the government had decided to join the euro from its launch in 1999, the referendum on that issue would have been already held during this Parliament, and would certainly have failed.

Tony Blair, the Prime Minister, did not want to offend the people who had just elected him in 1997, because otherwise he would have had to fear loss of their support and his popularity. Therefore, he prefered to postpone the final decision to a later date. In the meantime he would have the chance to introduce the Britons carefully to this precarious issue.

Furthermore, the government demanded reforms within the EU before it would take the introduction of the euro in Great Britain into consideration. It criticized the lack of flexibility in EU institutions that are responsible for the European monetary policy and declared that certain areas of politics should remain within the responsibilty of the national authorities.

The government does not yet want to hand over the disposal of proceedings that are decisive for the stability and prosperity in the country, such as the setting of its own interest rates, by joining the single currency.¹⁸ It fears that a loss of autonomy in major decisions might affect Great Britain adversely, because those pan-EU institutions are not familiar enough with the country's conditions.

2) Economic reasons

However, the government always emphasized that any decision concerning the euro will surely be based on economic terms, thus giving mainly economic reasons for not adopting the euro.

One great obstacle to Great Britain's membership is the fact that the country left the European Exchange Rate Mechanism (ERM). The ERM exists since 1979 and is supposed to connect the currencies of the EU memberstates.

Therefore the governments of those countries defined certain key rates, from which the daily determined exchange rates may only differ to a certain degree. However, the British pound went through an exchange loss, forcing the Bank of England to raise interest rates in order to achieve a correction of course. Since these higher interest rates slowed down Britain's recovery, the country decided to leave the ERM on its culmination on `Black Wednesday', September 1992.¹⁹ However, the participation in the ERM is a condition for joining the monetary union. Therefore, it will be necessary for Great Britain to readjust the pound to the other currencies of the EU or to the euro, respectively.

Another reason for the country's refusal to join the euro from the beginning, is that Britain's economy is still "at a different stage of the economic cycle from the rest of Europe".²⁰

The Prime Minister declared that the upswing was already reality in Britain, while it was just about to start in other countries of the EU such as France and Germany. Besides, economists warned that joining the euro straight away would contain serious risks, emphasizing that sterling had stronger links with the dollar than with continental currencies and that Britain's economy was more closely aligned to America than to Europe. Therefore the Prime Minister required economic reforms within the EU, such as "labour market reform through greater flexibility, capital market reform through a European venture capital industry and product market reform through extending competition and strengthening the Single Market".²¹

Those reforms should bring benefits to the economies, as well as to the people of the eurozone-countries. Extra competition results in lower prices and better quality of products and service. Capital market reform could simplify business expansion, increasing investment and employment.

Also Great Britain still has to go through a period of convergence, needing to adjust its high interest rates (about 7% in 1998) to those of the `euro 11' (3%). However, not only the difference between the countries` interest rates has to be narrowed before Britain will seriously consider joining the euro. Other basic parts of the economy, for example economic growth, inflation rate and employment figures must improve as well. Furthermore, it is necessary that economic convergence is not momentary, but sustainable. Since this is not yet certain, the Labour government decided to prepare for the euro at least during this Parliament, instead of signing up to the first wave. If it had decided differently, the government would have effectively lost control of the economy by handing over the three major tools of macroeconomic management (interest rates, fiscal policy and exchange rates) to EU institutions.²²

A hasty euro membership could have resulted in a destabilisation of Britain's economy, and would have therefore turned out to be a step back for the country. Besides, there was still the question whether the euro would be a success or not. Nobody was able to accurately predict if the euro would increase or decrease in value. The government declared that the risk of a loss of value existed, which might - if it became reality - cause serious disadvantages to Britain`s economy. Consequently, it decided to stay out of the monetary union, in order to wait and see the euro work in good times and bad. One very important aspect in this connection is the stability of the euro. Since economic structures in Great Britain differ from those in the eurozone- countries, it will be essential to see how the single currency can survive unexpected events - so-called `economic shocks'. "For example, a sharp rise in the price of oil would affect Britain as an oil exporter and Germany as an oil importer in totally different ways."²³

If the euro is strong enough to manage such difficult situations is still in the dark. So only after having observed the euro's development for some time, the government will be able to assess if the economic benefits of a membership on the part of Great Britain are clear and unambigous, or if the economic risks are predominant. Supposing that the last-mentioned was the case, the government's decision not to join the first wave of the monetary union might turn out to be advantageous to Britain.

III. Possible consequences emerging from Great Britain`s policy

1) Advantages

Since Great Britain's economy is flourishing, the eurozone countries are eager for a British euro membership. Therefore, the country is in far better position if it stays out for the time being, because the prospects that the demanded reforms within the EU will get ahead fast, improve, if those reforms are one of the conditions of Britain joining the monetary union.

By the time the United Kingdom will be prepared for a potential euro membership, many of the uncertainties surrounding the currency at its launch will have vanished and the economic consequences of joining the single currency will be clearer.²⁴ If the euro remains strong, or even increases in value, Britain is likely to decide on a membership soon. If the currency turns out to be weak or decreases in value, the government might rather refrain from joining in the near future.

Besides, the ECB will already be in operation for some time and thus the British government had the possibility to observe its actions and to see if it is flexible enough to manage unexpected problems successfully.²⁵

In this connection, it will be important to see in what way the issue of certain regulations, for example the expected tax harmonisation, will affect the economies of the `euro-11'. Accordingly, the government will judge whether the deals of the ECB are compatible with British interests.

Another advantage of joining the euro at a later date might be the fact that some British businesses will have used the currency before. On the basis of their experience of the euro they would - if Great Britain was to join - be able to manage with it better than those countries taking part in the first wave of monetary union.²⁶

To sum it up, it can be said that, on the one hand, Great Britain's euro policy does not expose the country to the possible risks of the newborn currency, while on the other hand the country cannot pursue its `wait and see' policy for too long or it might risk to be expelled by the `euro-11'. Therefore, the government has to take a decision in the forseeable future, otherwise certain disadvantages could arise from its failure to do so.

2) Disadvantages

The EU's patience with Great Britain will not go on indefinitely and the country might run the risk of having to pay both a political and an economic price for staying out of the monetary union.

A political disadvantage could be the strengthening of the Franco-German axis caused by Britain`s hesitation to join the euro, whereas France and Germany, which are said to have strong links to each other, and are considered to be trail- blazers within the EU, both signed up to the common currency. Great Britain's high standing and influence in the EU could wane the longer it refuses to adopt the euro, while other countries are entering the eurozone.²⁷

Yves-Thibault de Silguy, the outgoing EU Monetary Affairs Commissioner, predicted that especially key economic decisions - which also affect Great Britain to a certain degree - were increasingly being taken by the `euro 11', in which Britain has no say. He added that by the time Britain will finally join the euro, "the rules of the game will have been set in advance by others"²⁸, a fact that - in his eyes - could result in Britain falling behind in a "two-speed Europe".²⁹

Besides, the commissioner warned that the willingness of foreign companies to invest in the United Kingdom could be in jeopardy as long as the government decided to stay out of the euro. The pound might become an `escape currency' for those who do not dare to invest in the euro. This could cause an increasing strength of the British pound, leading to a rise in investment prices in the country.

The risk that investment might be switched from Great Britain could additionally be intensified by a rise in British wage costs, due to the strong pound. Although wage costs in Britain used to amount to approximately 60% of those in Germany, British economists fear that they would finally even exceed the German ones.

A pro-euro business campaign claimed that more than a million jobs in Britain were at risk because of the country's failure to join the euro and the resultant decline in foreign investment. The campaign leaders emphasized that overseas companies had created more than 900,000 jobs in Britain during the past ten years. Moreover, they added that firms intending to invest in the future, increasingly asked about the government's further plans concerning the country's euro membership. Anti-euro movements deny this, of course, insisting that British employees had nothing to fear from keeping the pound.³⁰

However, speculations on the consequences that might arise from Britain's previous euro-policy are uncertain, and quite often part of the strategy of the different parties or movements to convince the public of their views. As to how much impact Britain's rejection to join the euro will really have on the country, will not come to light until the launch of the single European currency. Depending on how it is going to develop, the Britons, no matter if they are politicians, economists or voters, may change their attitudes towards the euro.

VI. Great Britain's reactions since the introduction of the euro

1) Labour Party

The most drastic event for the Labour Party during the last year was certainly its disastrous performance in the European election. The governing party won a mere 28%, whereas the Conservatives secured a considerable 35.8%. This election defeat was a severe set-back for the government and its efforts to convince the public of the euro`s benefits, and thus create a euro-friendly atmosphere among the British voters.

This set-back was reinforced by the low turnout (23%) - the lowest ever in a national election in Great Britain. Many Labour supporters refused to vote in order to protest silently against the Labour government and its Europe- and euro-policy. Millions of others simply saw no use in going to the election, since "they were not settling a major national issue."³¹ Consequently, the election was unimportant to them, a fact also caused by a general lack of interest in European affairs among the Britons.

As a result, the Labour Party had to admit that it was asking too much of the public by already considering a possible entry to the monetary union. The party realized that it would have to persuade the people that Britain's position should be "at the centre of Europe, fully engaged and leading its affairs"³², instead of pressing for entry to the euro-membership.

For this reason the government joined the `Britain in Europe' (BiE) campaign, headed by Lord Marshall of Knightsbridge, the British Airways chairman. Furthermore, the `BiE' is backed by a great variety of supporters, including politicians from nearly all parties such as the Conservatives Michael Heseltine and Kenneth Clarke, representatives of both business and trade unions, and voluntary organisations.³³

However, the Labour Party did not decide to join until the leaders of this campaign declared that they would focus on strengthening Britain's position in Europe, instead of taking the Britons unawares by urging a hasty decision concerning the single currency issue. It is the aim of the `BiE' campaign to make the people reject the views of europhobes and to convince them that Great Britain benefits from playing an important role in the EU and in order to maintain this role, the country has to keep the option of joining the euro.<sup>34</sup> It is undeniable that the Labour Party started to distance itself from the euro, not exactly due to the almost steady downswing of the single currency since its launch - although this would be quite understandable - but due to the rebuff it had to meet at the European election. In order to appease the voters and win them over to his party`s side again, the Prime Minister declared that it would be "daft to join the single currency now".³⁵

The government evidently deviated from its previous line, proceeding to deliberately stress the obstacles to the Biritish euro-membership, rather than its advantages. The single currency became a "political peril"³⁶ for the Labour Party, since its euro-friendly attitude exposed the party to the risk of losing its general popularity and support from the British voters. For not having to worry about its re-election for the next Parliament, due to a euro- and Europe-policy which might act as a deterrent to the majority of voters, the governing party preferred to postpone the issue of the British euro-membership.

2) Conservative Party

The voters' great approval of the Conservatives' Europe- and euro-policy confirmed the party to maintain its hardline hostility to the single currency which was, according to experts, a substantial plus and a big factor in the European election.³⁷

Consequently, William Hague declared that his party would intensify its offensive against the euro, which would be the centrepiece of the next general election campaign.³⁸ By making the single currency a predominant issue, the Conservatives try to enlarge their electorate. Besides, the party stated that the development of the euro during its first year and its consequences on Great Britain have not at all been detrimental to the country, since, for example, London did not lose importance as the financial centre of Europe - contrary to the speculations of some pro-euro businessmen. Therefore the Tories emphasized that their initial reservations about the euro and their predictions concerning the currency's impacts - namely none that would be disadvantageous - on Britain had turned out to be right.

Furthermore, the Conservatives felt confirmed in their disapproving euro- policy by the almost steady downswing of the single currency since its launch. The upward trend of the British pound is another important Tory argument against a British euro-membership. Stressing that the adoption of the single currency would inevitably cause serious damages to the competitiveness of British enterprises, if the ratio of pound to euro (July 1999: 1£ = 1.54 ; January 2000: 1£ = 1.63 ) was fixed, the Tories intend to convince the voters as well as industrialists of the euro's prevailing disadvantages.³⁹

Another means of the Conservatives to mobilize the public against the euro is the nationwide broadcasting of anti-euro spots, which are to show that Britain's future is only lucky, safe and prosperous if the country dissociates from Europe and its common currency.

William Hague, the leader of the Conservative Party, even tended to strengthen his antipathy to Europe and especially the euro, assuming that this would appeal to a large number of voters. Consequently he promised to veto all future changes in the EU unless Great Britain is given the right to opt out of EU laws to which the country objects.⁴⁰ Whereas his party`s right wing defended this idea, it provoked a flood of protest from other Tory grandees who criticized Hague's policy for being "absurd and crazy"⁴¹ and for raising "question marks about the national interest"⁴², since pursuing this policy might result in Britain even leaving the EU.

Considering this Tory turmoil and the disunity within the party, it is questionable if the Conservatives will finally be able to regain their former power and popularity, since it is true that the majority of British voters reject the euro, but those supporting the country's EU-membership still outnumber its opponents. Thus the strenghtening of the Tories' Europe-hostility might turn out to be a grave mistake in the struggle for the voters' favour.

3) Economy

Although British economists originally ranked among the advocates of a British euro-membership, many of them seem to have changed their minds. In 1998 a CBI poll revealed 63% of British businessmen wanted to join the euro, whereas a poll for `Business for Sterling' in May 1999 showed that 60% of them did not want to adopt the single currency any more, at least in the near future, and 64% of CBI members shared this opinion.⁴³

A large number of exporters astonishingly also refrained from their approval of the euro, according to a survey by the `Institue of Export', discovering that only a bare majority (51%) maintained its approving attitude towards the euro. Ruth Lea, head of policy at the `Institute of Directors' (IoD) and advisor for `Business for Sterling', mentioned "the weakening in the value of the euro on foreign exchanges and the slowdown in the French, German and Italian economies"⁴⁴ as a main factor for the swing of opinion among British businessmen.

In its report "The UK and the euro - better out than in?" (April 1999) the IoD declared that British businesses would do better without the euro and that many business leaders were increasingly realizing that, if the country joined the monetary union, major economic decisions would not be entirely taken by Britain any more, but either partly or completely by EU institutions.⁴⁵ Since those pan-European decisions on important economic issues will probably not be in the best interests of Great Britain, but would nevertheless automatically apply to Britain upon entering the eurozone, most industrialists woke up to the fact that the adoption of the euro could cause more damage than benefit to their companies.

In August 1999 the IoD laid down five economic tests for a British euro- membership which attempt to quantify the criteria set out by Gordon Brown. Experts believe that these tests are almost impossible to meet and would rule out the introduction of the euro in Great Britain for the forseeable future. Like this, the IoD showed its disapproval of the single currency and tried to strenghten the anti-euro lobby.⁴⁶

It is true that both the strong pound and the weak euro have an extremly negative effect on British trade with the `euro-11', but most businessmen agree with the Tories in one respect, namely that the competitiveness of British companies would suffer if the ratio of pound to euro was fixed at the present figures.

Adair Turner, head of the CBI, said that only a rate of 0.75 = 1£ would be acceptable for British enterprises.⁴⁷ Since it is very unlikely that this exchange rate will be obtained in the near future, British industrialists will in all probability maintain their sceptic attitude towards the euro, a stance which is enthusiastically welcomed by the British public.

4) Voters

Most Britons did not change their attitude towards the euro - on the contrary - many even increased their aversion to the single European currency. The main reason for this development is the immense downswing of the euro since its launch. Surveys showed that the opposition of British voters to the currency grew with every lowest rate of the euro.

Furthermore many people are strongly influenced by advertisments in newspapers, magazines and especially by TV spots that are predominantly ordered by anti-euro movements and the Conservative Party, as mentioned before. Of course, pro-euro associations also use the media to convey their views and arguments to the people, but the extent of their adverts is rather small compared to that of anti-euro groups.

Besides, it is a widespread phenomenon that people who do not know much about a certain subject - which is definitely the case with Britons and the euro - tend to be rather reserved towards it. If the subject then changes - like the euro - for the worse, it is no problem for its opponents to win many people over to their side.

Most anti-euro movements deliberately stress that Great Britain would lose its unlimited right of self-determination, and that parts of its economy would be ruled by EU institutions that pursue a "one-size-fits-all"⁴⁸ Europe policy. Probably the most horrifying idea for a considerable number of Britons is the loss of their autonomy and concerning a British euro-membership the decline of their national identity in a "European superstate"⁴⁹ where they would be lumped together with all those nations from the continent.

This feeling of superiority and the anti-Europeanism is increasingly vanishing with the young, progressive and open-minded generations of Britons. However, at present it is still a great obstacle to the country's approaching Europe- and euro-policy.

V. Tony Blair: A pro-European among euro-sceptics and nationalists

1) Blair`s attitude towards Europe and the euro

Tony Blair is very often referred to as `the most pro-European Prime Minister since Edward Heath' who led Great Britain in the EU in 1975. There is certainly no doubt that he is strongly in favour of Great Britain`s ongoing membership of the EU.

But Tony Blair's position on the euro has been quite unclear for a long time. It is true that the Prime Minister declared that, in principle, he agreed to Britain joining a successful single currency, but only provided the economic conditions were met.⁵⁰

Thus the question if or when Great Britain would adopt the euro still remained open, since nobody was able to predict whether the country would ever come up to those conditions. Knowing that most British voters disapprove of the euro, Tony Blair did not dare to clearly state his stance concerning the issue of how he intended to act with regard to the EMU and a possible British membership.

He knew very well that the Britons would vote against the euro in a referendum if it was held too early. Consequently, the Prime Minister, who particularly did not want to set his voters against himself, tried to avoid the issue as long as he could. However, the working assumption was that Tony Blair favoured the euro, but was not prepared to say so yet. Furthermore, the Prime Minister repeatedly condemned the Europe- and euro- policy of the Tories for being a complete disaster. He said that it would "either lead to Britain leaving the EU altogether or see it so left on the margins that its influence would be negligible."⁵¹

Besides, Tony Blair accused the Conservatives of being set on an extremly hostile view on the EU and the euro, because they hoped to re-enlarge their electorate and to regain their previous strength. At the next moment he added that this intention would fail, because the voters would surely recognize that the Conservatives' policy was not in the best interests of Great Britain, in contrast to the one of the Labour Party.

Furthermore, the Prime Minister is convinced that the Britons will be reasonable enough to give up their loathing for the euro and to approve of it.

2) Blair`s political course since the euro`s introduction

The defeat at the European election was not only for his party, but also for Tony Blair in person, the most drastic event during the past year. It was the worst electoral performance of the Labour Party since 1983. Due to this set- back the Prime Minister appeared to have taken a rather cautious position on the euro.

Although he insisted he was simply restating the government's position, it was undeniable that he had turned to distance himself from the euro. The Prime Minister, who said he supported a British euro-membership in principle, now spoke about completely different views of the single currency and especially stressed the hurdles to Britain joining.⁵²

However, influential ministers started to urge Tony Blair to declare his definite stance on the euro, fearing that otherwise the Labour Party might lose its popularity, and thus could not win the next general election. If the voters did not know where the Labour Party would stand in a referendum on the single currency, they would probably refuse to support this party.⁵³

Many experts share this opinion and furnish proof of it in the European election. They claim that the defeat stems from the ineffective election campaign that was run by the Labour Party. Since it coincided with the Kosovo conflict, the government had to concentrate upon foreign affairs and neglected preparations to the European election. Consequently, many British voters felt that the government gave top priority to foreign, rather than to domestic affairs and expressed their discontentment either by refusing to go to the election, or by voting for another party, according to experts.

Also Tony Blair admitted that the set-back in the European election "was a timely reminder to the Government to deliver on its domestic policies."⁵⁴ Not being sure which course he should adopt concerning the euro, the Prime Minister took advantage of the turmoil within the Conservative Party, mentioned above, and the resultant confusion among the public which line the Conservatives were actually pursuing.

Tony Blair decided to neglect the issue of the euro for some time, focusing on Britain's position within the EU instead. Knowing that 58% of Britons want to stay in the EU, the Prime Minister accused the Tories of having become an extremist party whose policy would lead to Britain leaving the EU. This, he knew, was not in the voters' interest. "His tactic: talk up Europe, talk around the euro and lump all his opponents into one `extremist' camp."⁵⁵

Tony Blair`s aim is to make the issue `join the euro or leave the EU', leading voters to believe they would have to decide between Europe and the euro. If the Prime Minister succeeds in this point, he will win the referendum on the single currency, according to Dominic Cummings, the research director of `Business for Sterling'.⁵⁶

Tony Blair's first initiative to realize his new plan took place at the Labour Party conference in Bournemouth, in September 1999.

The Prime Minister used this occasion in order to deliver an astonishing speech, in which he said that Great Britain could not survive as a world economic power outside the EU. He added that a half-hearted approach to the euro would leave the UK with no option but to quit the EU. Afterwards, he posed the question as to whether Britain's destiny was with Europe or not - adding that if the answer was no, the country's economic future would be uncertain, but certainly it would not be powerful. Furthermore, Tony Blair reminded that Britain would give up its determining part in the future of the continent to which the country belonged, and would therefore end 1,000 years of history.

Finally, the Prime Minister appealed to his people to choose its destiny "with our eyes open and our senses alert, not blindfolded and dulled by the incessant propaganda of Europhobes."⁵⁷

C) Outlook on Britain`s future actions

Regarding all the advocates and opponents of the euro and their arguments why Britain should or should not join the EMU, it is extremly difficult to determine who is right. In the end it will be the decision of the British voters whether Great Britain will adopt the euro or not. Until the Britons will be asked to vote on the euro in a referendum, the different parties, movements and associations will continue to campaign for their views. However, concerning the voters' future decision, there is one important aspect that should not be neglected.

In spite of all the different reasons for the Britons' disapproving attitude towards the common European currency, such as a lack of information, the euro's downswing, the influence of anti-euro groups or parties, or even nationalism, the people still might change their view. Since many British voters and even the most nationalist and anti-euro newspapers, such as `The Sun', are backing their Prime Minister Tony Blair who is, in their view, the best - and the only - man for this job.

According to Prof. Bob Worcester, a leading member of the polling institute `Mory', the British voters will re-form their opinion shortly before the referendum will be held. Seeing Tony Blair, all the influential politicians and big shots who stand up for the introduction of the euro in the UK, the Britons will trust those rather than the other ones who want to keep Britain out.⁵⁸

Regarding the confidence the British voters have in their Prime Minister, and Tony Blair's gift of rhetoric, the statement of Mr Worcester appears to be very credible. The people trust in Tony Blair and believe that he would only recommend a British euro-membership if he is convinced of its benefits to the country. Consequently it seems to be quite probable that the Britons support Tony Blair's course as far as the euro is concerned.

Finally judging the mentioned aspects, it is - in my view - very likely that Great Britain will join the euro during the next Parliament, given the Labour Party is to be re-elected.

[...]

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¹ http://www.euro.gov.uk/will/time.html

² http://www.euro.gov.uk/will/time.html

³ http://eic.de/eics/sw8a.htm

⁴,Was bringt uns der Euro` (S. 79); Naumann & Göbel Verlagsgesellschaft mbH; Köln (ohne Jahr)

⁵ http://europa.eu.int/ouest/normal/I-Q5.htm?language_nb=5&q_a_reference_nb=1082

⁶ Lionel Barber; `Wait and Join';Wirtschaftswoche Nr. 42; 09.10.1997; Seite 258

⁷ Philip Webster/ Peter Riddell; `Labour wounds on euro';The Times; 25th September 1999; p.01

⁸ Philip Webster; `Blair concedes that British don`t want euro';The Times;10th June 1999; p.10

⁹ William Hague - Source:`We won`t surrender`; The Daily Telegraph; 31st December 1997; p. 26

¹⁰ Sir John Nott - Source: `Britain`s interests are best served by keeping pound`; The Times; 23rd September 1999; p. 13

¹¹ Anthony King; `Companies back Britain to join Euro-currency`; The Daily Telegraph; 10th November 1997; p.02

¹² Anthony King; `Companies back Britain to join Euro-currency`; The Daily Telegraph; 10th November 1997; .02

¹³,Britische Firmen für Euro-Beitritt`; Handelsblatt Nr. 138; 21.07.1999; S. 08

¹⁴ Hugo Young; `John Bull`s faint heart'; Newsweek;Special issue; November 1998 - February 1999; . 82/83

¹⁵ Hugo Young; `John Bull`s faint heart';Newsweek; Special issue; November 1998 - February 1999; p. 82/83

¹⁶ Anthony King;`Voters still in dark over currency`; The Daily Telegraph; 29th December

¹⁷ Tony Blair - Source: Amanda Bernard/Nisha Gopalan; `Hoisting a small sail`; Newsweek; Special issue; November 1998 - February 1999; p. 12/13

¹⁸,Blair wirbt für seine Europaidee`; dpa; Mai 1997

¹⁹ `Sterling must fall warn IMF chiefs'; Metro; 18th May 1999; p. 32

²⁰ Tony Blair - Euro statement; 23rd February 1999; House of Commons Source: http://www.number-10.gov.uk/textsite/inf asp?random=9448&index=72&sessionid=3593

²¹ Tony Blair - Euro statement; 23rd February 1999; House of Commons Source: http://www.number-10.gov.uk/textsite/inf asp?random=9448&index=72&sessionid=3593

²² `Britain`s interests are best served by keeping pound'; The Times; 23rd September 1999; p. 13

²³ `We won`t surrender'; The Daily Telegraph; 31st October 1997; p. 26

²⁴ M. White/ C. Denny;`2001:a political odyssey into the future`; The Guardian; 30th December 1998

²⁵ http://www.euro.gov.uk/will/ukemu.html

²⁶ http://www.euro.gov.uk/will/ukemu.html

²⁷ Philip Webster/Peter Riddell;`Labour wounds on euro`; The Times; 25th September 1999; p. 01

²⁸ Philip Webster;`Blair picks up gauntlet for Europe`; The Times; 27th July 1999; p. 01/02

²⁹ Philip Webster;`Blair picks up gauntlet for Europe`; The Times; 27th July 1999; p. 01/02

³⁰ Jon Hibbs/ George Jones;` Million jobs at risk if Britain rejects single currency`; The Daily Telegraph; 30th June 1999; p.14

³¹ Anthony King;`Why new Labour is looking old hat`;The Daily Telegraph; 15th June 1999; p. 14

³² Philip Webster;`Blair picks up gauntlet for Europe`;The Times; 27th July 1999; p. 01/02

³³ Philip Webster; `Blair backs Europe, not the euro'; The Times; 28th June 1999; p. 05

³⁴ http://www.britainineurope.co.uk/about.html

³⁵ `Why euro move is daft, by Blair'; Metro; 21st June 1999; p. 04

³⁶ J.F.O. McCallister; `The Which Blair Project'; Time; 25th October 1999; p. 38

³⁷ Philip Webster;`Blair backs Europe, not the euro`; The Times; 28th June 1999; p. 05

³⁸ Philip Webster/Tom Baldwin:`Blair at bay over future of the pound`; The Times; 15th June 1999; p. 01

³⁹ Silke Wettach; ,Kleineres Übel`; Wirtschaftswoche Nr.28; 08.07.1999; S.32

⁴⁰ J.F.O. McCallister; `The Which Blair Project'; Time; 25th October 1999; p. 38

⁴¹ John Major (former Tory Prime Minister) - Source: J.F.O. McCallister; `The Which Blair Project'; Time; 25th October 1999; p. 38

⁴² Chris Patten (former Tory chairman) - Source: J.F.O. McCallister; `The Which Blair Project'; Time; 25th October 1999; p. 38

⁴³ http://www.freebrit.demon.co.uk/iod-rpt.html

⁴⁴ http://www.freebrit.demon.co.uk/iod-rpt.html

⁴⁵ http://www.freebrit.demon.co.uk/iod-rpt.html

⁴⁶ Lea Paterson; `IoD lays down tough tests for Britain joining euro'; The Times; 16th August 1999; p. 21

⁴⁷ SilkeWettach; ,Kleineres Übel`; Wirtschaftswoche Nr. 28; 08.07.1999; S. 32

⁴⁸ `Joining euro will need act of faith'; Metro; 28th May 1999; p. 33

⁴⁹ Amanda Bernard/Nisha Gopalan; `Hoisting a small sail`; Newsweek; Special issue; November 1998 - February 1999; p. 12/13

⁵⁰ Tony Blair - Euro statement; 23rd February 1999; House of Commons Source: http://www.number-10.gov.uk/textsite/inf asp?random=9448&index=72&sessionid=3593

⁵¹ `Tory euro policy leaves UK sidelined, says Blair'; Metro; 3rd June 1999; p. 05

⁵² `Why euro move is daft, by Blair'; Metro; 21st June 1999; p. 04

⁵³ Philip Webster/Tom Baldwin:`Blair at bay over future of the pound`; The Times; 15th June 1999; p. 01

⁵⁴ George Jones;`Blair more cautious on euro`; The Daily Telegraph; 21st June 1999; p. 04

⁵⁵ J.F.O. McCallister; `The Which Blair Project'; Time Magazine; 25th October 1999; p. 38

⁵⁶ J.F.O. McCallister; `The Which Blair Project'; Time Magazine; 25th October 1999; p. 38

⁵⁷ Tony Blair - Source: Trevor Kavanagh; `Surrender'; The Sun; 29th September 1999; p. 01 Annotation: The whole content of Blair`s speech is taken from this source

⁵⁸ ZDF; Heute Journal; Reportage am 07. Juni 1999