19 December 2001

WHY BRITAIN SHOULD JOIN THE EURO?

Two Personal Views on Britain and the euro

By Charles Grant:

Britain should join the euro within the next few years in order to enhance British power and influence. The case for joining is partly economic and partly political.

Economically, British companies will not enjoy the full benefits of the European single market as long as they are separated from the main part of that market by a variable exchange rate. British business has a disincentive to export, import and invest in the euro zone while currency fluctuations continue to create risk and uncertainty over future returns. As a result, British companies will be more likely to retain a domestic focus and emphasis, compared with their euro zone competitors. Equally, euro zone companies will have less interest in doing business in Britain. Ultimately, British companies risk missing out on the economies of scale and profit offered by euro zone membership. This will damage the long-term competitiveness of the British economy.

Politically, Britain cannot become one of the leading countries in the EU so long as it remains outside the euro. The opportunities for Britain to assume a leading role are great. The Franco-German special relationship is in an extremely troubled state. And with ten countries likely to join the EU in 2004, France and Germany - even if they could once again becomes close friends - will no longer have the ability to set the Union's agenda. Both the French and the Germans are also ready to develop closer ties with the UK on specific issues. The French are looking to British help in developing an effective EU foreign policy and on institutional reform. Germany wants British support on economic reform and trade. But neither country is prepared to fully trust the British so long as they are outside the euro and thus uncommitted to the common destiny of the euro zone countries.

If Britain joined the euro, a more fluid pattern of alliances within the EU would emerge. Instead of France and Germany nestling up together, with Britain at some distance, there would be different alliances among the big three on different subjects. The small countries, too, would find it much easier to ally with the British if they were in the euro. The Dutch, for example, have long wanted Britain to take a more positive attitude to Europe, to diminish Franco-German domination. However, so long as Britain shuns the euro, its voice on economic issues - ranging from the reform of the European Central Bank, to rethinking the common agricultural policy, to the "Lisbon process" of economic reform - will count for less than it could and should.


A Non-British view: By Daniel Keohane

Most people in the euro zone are quite relaxed about the fact that the UK, along with Sweden and Denmark, has decided to stay out of the Euro. Many business people and politicians would prefer Britain to join, but they have no desire to take part in the British debate on the issue. The attitude might best be summed up as agnostic: "We are used to waiting for the British and if they do not want to join that is their choice. We are not going to lose any sleep over it. We will go ahead and make it work regardless." The euro zone will benefit if and when Britain joins. But few non-Brits will have nightmares if Tony Blair loses, or even fails to call, a euro referendum.