Britain braces for euro currency

Pounds will remain, but London wants to keep financial role

January 04, 1999|By Bill Glauber | Bill Glauber,SUN FOREIGN STAFF

LONDON -- For the British, there is no escaping the euro, the new single European currency that fuels the neighborhood's new economic colossus.

As euro trading unfolds today, Britain prepares for life next to Euroland, the 11-nation block of euro founders led by Germany and France. Britain is the most prominent of the European Union's four euro outsiders and is poised to protect its financial turf.

Throughout the holiday weekend, the square-mile City of London financial district buzzed with activity, as banks and international investment firms set up "war rooms" and "command centers" to prepare for the euro. An army of 30,000 back office staff handled such tasks as reprogramming computers and converting currency balances to the euro.

London's leaders are determined to keep the city's place as a global financial center, with its 500 international banks and nearly one-third share of the world's foreign exchange market.

But an even tougher project could lie ahead -- persuading ordinary Britons to surrender their pounds and pocket the euro.

When it comes to strengthening ties with Europe, the British have historically made up their minds slowly. In 1973, after prolonged debate, they joined the 15-year-old European Community, forerunner of the European Union, and voted two years later to stay in.

For some here, the creation of the euro is viewed as the wedge to create a European superstate. Among continental leaders, there are already discussions about harmonizing tax rates and fostering common European foreign and defense policies, even creating a European army. To British "Euro-skeptics," such talk is the stuff of continental nightmares.

By almost 2-to-1, Britons say they would vote against joining the single currency, although 80 percent agreed British participation in the euro is inevitable, according to a recent Gallup poll in the Daily Telegraph.

Yet there is also a growing move to bring the euro to Britain by 2002, when euro notes and coins will be issued and national currencies will be phased out.

British Prime Minster Tony Blair has said the country "can remain independent of the euro. The question is whether it is in our interest."

The 11 European nations that launched the euro Friday represent 290 million people and 18 percent of world trade. Goals of the common euro currency include helping the European Union build a common market that can better compete against the United States and Asia and providing a rival to the U.S. dollar as the currency of choice in international commerce.

Unlike the previous Conservative government, which imploded over European issues, Blair's Labor Party appears determined to bring Britain into the euro zone. But Blair has promised to wait until after the next elections, which must be held by 2002. He also vowed to bring the issue to a public referendum, setting the stage for what could be a bruising campaign.

"The United Kingdom will almost inevitably join, sooner rather than later, sometime in the next three years," said Chris Golden, a euro analyst and independent consultant.

Golden said that the euro issue will eventually be guided by what is known as "eurocreep."

"A lot of companies will be doing their invoices in euros," he said. "European companies in the United Kingdom will then ask their subcontractors to pay in euros."

Golden said that, in time, public resistance, will give way to acceptance, as Britons spend their euro-denominated traveler's checks in the euro zone and see such benefits as lower euro mortgage rates and uniform pricing among participating countries. The euro will also seep into Britain along its border with Ireland, one of the euro founders.

"Unless there is a major disaster in terms of the euro, which is pretty unlikely, you'll have a general trend of opinion towards it," Golden said.

Cracks are appearing in other anti-euro countries. In Sweden and Denmark, polls show the public moving in favor of the currency. Greece is trying to qualify economically and hopes to be admitted to the euro club by 2000.

But in Britain, the euro battle could be fierce.

The Sun of London, the nation's largest daily, sprinkled its euro coverage with such headlines as, "11 Nations Begin To Die As Euroland Is Born."

The Sunday Times of London said in an editorial yesterday, "Now that the euro is becoming a reality, the risk is that both politically and economically Britain will be sucked in."

Pub Date: 1/04/99

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