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Britain Defers Vote on Euro, Pledges Reforms

Government declares support for adopting European currency but says hurdles remain.

June 10, 2003|From Associated Press

Britain won't abandon its pound for Europe's single currency until the British economy converges more closely with that of the 12-nation euro zone, the treasury chief told Parliament on Monday.

Chancellor of the Exchequer Gordon Brown, in a long-awaited announcement, said four of the five economic tests he had set for Britain's membership in the euro system have yet to be met.

However, he declared support for adopting the euro in the future and pledged to pursue "radical" reforms that would make it possible to readdress the issue within a year. He said the government would propose legislation for a referendum on membership within months.

"I believe a modern, long-term and deep-seated pro-European consensus in Britain about Britain's role in Europe and Europe's role in the world can and will be built in our country," Brown said.

The Labor government had set five economic tests for membership: sustainable convergence between Britain and the euro economies; flexibility to cope with economic change; the effect on investment of joining the euro system; the effect on jobs; and the effect on Britain's financial services industry. In his speech to the House of Commons, Brown said only the last of those tests had been met.

Britain, Denmark and Sweden sat warily on the sidelines when the euro was launched in Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain for financial transactions on Jan. 1, 1999. The 12 nations started using euro coins and bills three years later.

The expected benefits of euro membership, Brown said, include greater productivity, lower transaction costs for businesses and consumers, and growth in trade of up to 50% over 30 years with other members of the euro zone. But Britain's economy must first converge more closely with those of the euro members and strengthen its flexibility to withstand economic shocks, he said.

Prime Minister Tony Blair on Monday phoned the leaders of euro zone members Germany, France, Ireland and Spain to assure them that his government remains committed to joining the single currency if the economic conditions are right, his office said.

The European Commission, the executive arm of the European Union, said it would continue to follow the British debate about euro membership "with interest" but declined to comment on Brown's assessment.

Opposition in Britain to membership in the single currency has been fierce.

"Joining the euro would damage our prosperity, destroy jobs and lead to an irreversible ... loss of control over economic policy," Conservative Party treasury spokesman Michael Howard said after Brown's speech.

Businesses in Britain are divided on the issue. Larger companies that already buy and sell in euros elsewhere in Europe are more inclined to favor membership, though smaller firms tend to worry that membership may lead to an increase in red tape and taxes.

Adopting the euro isn't simply a matter of changing currencies. The euro nations have locked their economies together, submitting to the discipline of a European Central Bank that must determine a one-size-fits-all interest rate.

Skeptics note the bank's difficulty in setting a rate low enough to stimulate an economy that's slumping, like Germany's, and high enough to damp inflation in a peppier country such as Ireland.

"I think it is an intrinsic flaw in the system," said Richard Jackman, an economist at the London School of Economics.

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