UK LOOKING FOR EURO-ZONE ENTRY!
If the UK really looking for Euro-zone entry and to get benefits then has to sacrifice few interests
By ALI FARHAN CHAUDHRY
July 15 - 21, 2002
Euro-zone is not a new concept for the world economists because as a community 12 European nations have already joined and started their joint functions. Euro-zone took the final step and started trade of the single currency electronically on 1st January 1999 and launched it later physically on 1st January 2002. Britain, together with Sweden and Denmark, has so far not opted to join euro bloc. Now a days it is a hot issue among economists and even politicians that either the Britain would join the Euro-zone or not, and it is very critical because if the Britain joins then sterling will converge into Euro and in this way the pound will loose its royalty and identification.
To join the Euro the Britain will have to fulfil the chancellor's "five tests" of economic credibility. It seems that the UK economy has already passed the five tests for entry into the euro and is in a good position to "maximize the benefits" of membership, which deal with the impact of membership on jobs and investment as well as economic convergence.
At the same time it should be kept in mind that Euro-zone anxiously waiting Britain entry as Britain has strong political influence and also safe land for investors, e.g. UK is attracting more than eighty per cent out of the total foreign investment towards the whole Europe. On the other hand UK economy painted very good sentiments as its industrial production jumped a bigger than expected 1.1 per cent in April from the previous month, the first rise for eight months. Separate data showed a global goods trade deficit narrowed down to 2.43 billion pounds, the smallest shortfall since last October. UK gross domestic product was revised up to 0.1 per cent growth in the first quarter from zero growth. The year on year rate was also revised up to 1.1 per cent. At the same time UK inflation slightly recorded low at 1.1 per cent below the Bank of England's target of 2.0 per cent in the month of May. The number of Britons claiming unemployment benefit fell last month to its lowest level in 26 years. These good economic figures are the result of efforts made by the the Bank of England in the last year, which lowered its rates to 38-year low of 4.0 per cent.
In the current scenario the pound is supposed to be depreciating in the cross rate of euro in order to protect Britain exporters and jobs. Anyway the British currency has gained five per cent against the dollar since the start of the year, but has under performed to 2 1/2 years lows against the euro, which has jumped more than 11 per cent against the Greenback over the period. The dollar has been under broad-based selling pressure for the last three months as doubts over the strength of the U.S. recovery and a series of corporate accounting scandals such as Enron and World Com have dimmed the appeal of U.S. assets. The pound's recent fall beyond 65.20 pence per euro brought it close to levels where economists believe Britain could join Europe's single currency without permanent loss of competitiveness. Sterling's strength against the euro in recent years has been seen as an obstacle to British entry into the single currency, with manufacturing groups warning Britain could suffer a loss of export competitiveness if it were to join at too high a rate. Industry groups have already complained that British jobs have been put at risk by the government's reluctance to give a firm commitment to joining the euro.
Meanwhile, British Prime Minister Tony Blair has promised to deliver a verdict by next June on whether the economic conditions are right for Britain to join the euro or not. If the economics are deemed right, Blair has said he will recommend entry and offer a referendum on the issue. On the other hand key Britain bankers seem to take some more time to have better judgment either to join the Euro as in an interview with the Financial Times, Britain's Chancellor of the Exchequer Gordon Brown said he would not be pushed into joining the European currency by the pound's weakness. He also said the Treasury was carrying out extra work on the exchange rate, housing market and labor mobility with regard to joining the euro. In a keynote speech to top City bankers, Brown said Britain's place was at the heart of Europe but that the euro tests would not be diluted.
Meanwhile, a lobby is working not to join the Euro and in this regard jitters mounted when a newspaper reported media mogul Rupert Murdoch might campaign against British entry into the euro. The Financial Times reported that the owner of several top British papers, including the mass-selling "The Sun" and "The Times", said "Vote No" was the message he would like to see spread by his famous British newspapers. Murdoch did not say he would actually launch a newspaper campaign against possible entry. Anti-euro sentiment hit its highest level this year in June, a new poll has showed, suggesting recent euro-friendly statements from the government were having little impact on public opinion. The latest Euro track survey carried out by pollsters NOP on behalf of Barclays Capital found 49 per cent rejected joining the euro even if the government recommended entry. That was up from 46 per cent in May and compared with a steady 36 per cent who favoured joining the 12 other European Union countries. The remainder said they did not know or would not vote in a euro referendum. It was the highest level of euro opposition measured since the Euro track survey began asking the question in January. The poll, which was carried out between June 6 and 11, came shortly after Prime Minister Tony Blair gave a television interview in which he said it would be a "betrayal" of British national interests to allow political hurdles to block UK entry of the euro.
So, if the UK really looking for Euro-zone entry and to get benefits then has to sacrifice few interests that later on would be priced. The most prominent benefit will be that UK businessmen would have access to a market of 300 million people from 12 nations. And also will join one of the biggest economic blocs on the earth.