Britain and EMU
BRITAIN is not about to sign up for the European single currency, not by a long chalk, but the issue of membership is finally starting to be taken seriously. On July 22nd, the Confederation of British Industry (CBI), the voice of big business, will announce the results of a survey of its members which shows that barely 10% of them want to rule out membership of EMU for ever. The CBI is, as a result, expected to come out for EMU entry, as its trade-union cousins in the TUC already have. Although the CBI will not favour going into a first wave of EMU in 1999, it could advocate an interim return to the more flexible exchange-rate mechanism, out of which sterling was ignominiously forced in 1992.
Polite though the government generally is to business, however, the CBIs new position is unlikely itself to determine British policy. Ministers from Tony Blair down continue their wait-and-see policy. The most the CBI can achieve is to help to start a debate that has been too long delayed.
In the City of London, EMU will revolutionise the way financial firms operate, whether or not Britain joins. Yet its preparations have been desultory. In business generally they have been worse than that. Although Eddie George, the governor of the Bank of England, tried to arouse City interest, Kenneth Clarke, the previous chancellor, dared not start a wider discussion. He had only to say EMU for Tory Eurosceptics to leap down his throat.
Gordon Brown, the new chancellor, is not thus inhibited. He tried to provoke a debate in a speech to the Royal Institute of International Affairs on July 17th. Whether Britain is in or out of EMU will have profound implications for Britains business and Britains economy, he declared. He also announced some useful if belated practical steps to arouse interest. The Treasury is distributing a summary of a magisterial study of EMUs pros and cons by Lord Currie, an economist at London Business School. (The full study is published by the Economist Intelligence Unit, a sister company of The Economist, at £195.) With it goes a Treasury study of EMUs implications for business. An advisory group will be set up, chaired by a senior businessman.
Mr Brown reckons that the governments generally positive approach to Europe will increase its ability to influence EMUs shape, whether Britain joins or not. In some respects, this is an influence for good, since Mr Brown stresses the need for more flexible labour markets if the system is to work. Yet Britain is too strongly attached to the present convergence criteria for EMU, with their emphasis on strict ceilings for state borrowing. It is much more important that there should be a truly independent European central bank, able to pursue anti-inflationary policies without fear of political intervention. The instinctively pro-EMU Mr Brown, who has given independence to the Bank of England, should be in a good position to spread that view across the channel to France.
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