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Lionel Barber: The cost of dithering

From the vantage point of Europe, the Labour government's topsy-turvy policy toward Britain joining economic and monetary union carries an air of déjà vu.

For five years, European leaders watched with frustration the previous Conservative government's manoeuverings over Emu. Tony Blair, the new prime minister, was supposed to be different: a fresh face with an open mind, a huge parliamentary majority and a mission to assume a leading role in Europe.

Until Labour offers an official statement to parliament on Britain and Emu, the inclination in Brussels is to give Mr Blair the benefit of the doubt. But if the UK prime minister fails to offer a declaration of intent to join Emu by mid-2002, when euro notes and coins come into circulation, Europe will wonder whether Britain is considering staying out indefinitely. Delayed entry will come at a price.

Emu presents Labour with choices no less fateful than those more than 40 years ago when Britain declined to join the six founding members of the European Economic Community. For Chancellor Helmut Kohl of Germany, President Jacques Chirac of France and other European leaders, the single currency is not only indivisible from the single market; it is also the catalyst for the deeper integration necessary for the planned enlargement of the EU to the former communist countries of central and eastern Europe. Emu, like the 1957 treaty of Rome, is not just about economics. At bottom it is a political enterprise.

Since John Major, the former prime minister, negotiated the right to opt out of Emu in 1991, Britain has enjoyed the best of both worlds. Ministers have had a voice in negotiations on the terms of the single currency while sitting on the fence. But once EU leaders decide in May 1998 which countries qualify for Emu, Britain will no longer have an equal say at the table.

The costs of that are several. The UK will have no vote on the appointment of the new president, vice-president and other members of the executive board of the European Central Bank. Nor will it have a say on the monetary policy pursued by the ECB in the euro zone. The ECB will act as spokesman for this group in international forums such as the G7, where Britain's voice will be diminished.

Inside the Ecofin council of European Union finance ministers - perhaps the most powerful political forum outside the six- monthly EU summits - the UK position will also be eroded. The thrust of UK economic policy toward labour market flexibility, which many believe is essential if Emu is to work effectively, will have less impact. But Britain will be expected to manage exchange rate policy as a "common concern" even if it remains outside Emu.

The UK will not have a seat in a new "euro council" forum where Emu-bloc countries will gather ahead of the monthly Ecofin meetings. At German insistance, the forum will be informal in order to insulate the ECB from political interference; but few doubt the new grouping presages a decisive power shift toward the Emu elite dedicated to closer co-ordination of economic policy.

On present projections, the select Emu group will comprise at least two-thirds of the 15 EU countries, including previous long-shot Italy. Britain, along with Denmark, Sweden, and Greece, will be out in the cold. Some UK ministers are worried that the balance of power in the Union will tilt toward a French-led dirigiste approach.

The imminent launch of the single currency, remarks an EU commissioner in Brussels, is already exerting a pervasive influence on policies such as taxation, competition policy, state aid and EU budget policy. The risk for Britain is that political trade-offs could be made among Emu-bloc countries and presented to the rest of the EU as a fait accompli. No doubt, the UK would insist that all deals should be compatible with EU treaties and would reserve the right to appeal to the Commission. But as one UK official admits: "Outside Emu, I am not sure we would get a fair hearing."

An official close to negotiations between London and Brussels believes UK influence would begin to wane on a range of EU issues, not least the shaping of the Union's budgetary priorities and the thrust of reforms to the Common Agricultural policy.

Ultimately, the cost of staying out indefinitely may be measured in terms of missed opportunities. Semi-detached Denmark and Sweden meet the economic criteria for entry but are hesitant on political grounds. The pro-European forces in these countries had been looking to Mr Blair to give a lead. They may now be in for a disappointment.

The biggest missed opportunity could be failure to break into the Franco-German magic circle. For two decades or more, French strategy has been to avoid being subsumed in a D-Mark bloc. The answer was Emu, but as one senior French official says: "British involvement would give the project a critical mass which it otherwise lacks."

From Germany's standpoint, UK participation in Emu would stymie any French temptation to turn the single currency into a political project to counter US power, with a weaker euro used as a competitive tool against the dollar.

The pro-Emu camp argues that Britain can only fulfil its ambition for shaping the future of the EU if it joins the single currency. Peter Mandelson, the minister closest to Mr Blair, indirectly summed up the stakes in a speech last year when he attacked those in the Conservative party flirting with withdrawal from the Union. "The real danger is that we are going to stay in while often sounding as if we wish we were out. This threatens to leave Britain with the worst of both worlds."

UK: Government unity strained by Emu


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