Britain And The Euro
The British prime minister, Mr Tony Blair, appears to have moved sterling a significant step closer to membership of the euro. The very fact that he has launched a national change-over plan for the switch to the single currency, is itself significant, even though Mr Blair insists that the government has not yet committed to membership.
It was a "change of gear" rather than a change of policy, he argued yesterday. Whatever it was, the odds are that Britain will now decide to become a member of the single currency zone in 2001 or 2002, shortly after the expected date of the next election.
If a decision is made in 2001 to join, according to the change-over plan, then the process could be complete and sterling abolished by 2004. This leaves open the question of when sterling would be irrevocably linked to the euro, which would happen before the notes and coins were introduced and would effectively be the key step to joining monetary union.
While a move to seek public support shortly after the next general election is the likely outcome, it cannot be taken for granted. Having opted not to join monetary union in the first group, it is clearly in Mr Blair's interests to watch the single currency develop and not to make any firm commitment until its success can be gauged. As he said himself: "Britain should join a successful single currency," provided the economic tests set by the government are met.
While the euro has established itself quickly on the financial markets, it has shown a somewhat worrying trend since then and the economic difficulties faced by the main EU economies may mean turbulent times for the new currency for some time to come. Britain will wait and watch before making a decision to join.
Mr Blair also faces the challenge of persuading the British public. Much - though by no means all - of big business is already pressing for euro membership. The City of London is broadly in favour. The Labour government realises that it will face stiff opposition from elsewhere - notably sections of the press - to an early move to join. That euro membership remains a highly contentious issue in the Commons, can be judged by the strong criticism of Mr Blair by the Conservative leader, Mr William Hague.
Mr Blair will want the next election to be safely won before he goes fully on the offensive to seek backing for euro membership. Judging by his tone yesterday, however, and by later comments from the chancellor of the exchequer, Mr Gordon Brown, the government is strongly in favour of bringing sterling into the single currency.
From Ireland's point of view, the earlier Britain enters the euro zone the better. For as long as sterling stays outside, the economy here remains vulnerable to swings in the value of the British currency. If sterling appreciates too far, then import prices here could rise, with a consequent boost for inflation - as is threatened at the moment. If the British currency falls, then Irish exporters could find themselves losing markets. It looks, however, as if we will have to run these risks for another few years, at least.