26 September 1997

Single currency to leave UK standing

A SINGLE European Currency will happen on time, but the UK will not be part of it to start with.

That was the prediction of Midland Bank head of economics, Dennis Turner, addressing the UK 200 Groups annual seminar in London. "It seems as if the train has left the station and monetary union will go ahead on Jan 1, 1999," he told the accountants.

The UK was unlikely to join in the life of the current parliament, he said. And for as long as it is on the outside, sterling is likely to remain a strong currency. This would keep the pressure on most export-oriented industries, including agriculture.

The single currency was a "double-edged sword", Mr Turner added, with several arguments in its favour:

&#8226 It takes away the need for currency transactions, leading to reduced risk and increased trade.

&#8226 Interest rates and inflation are likely to be lower.

&#8226 Being part of the single currency will give the UK more political clout within Europe.

But there were also arguments against:

&#8226 Previous attempts to fix exchange rates had always failed.

&#8226 The UK would lose its ability to adjust interest rates to manipulate its own economy.

&#8226 There could be a hidden political agenda, for example the imposition of the social chapter.

Whether UK membership was a good or bad thing was very much a personal judgement, he said. There were no risk-free options, but the crucial thing was that the system should actually work. "There is no joy in seeing it crash as the EU is so important to all of us," he said. "Over 50% of our trade is with the EU and, if it does fail, the EU will splinter, which will be no good for anyone."n