Culture, Concerns Keep Some Nations on the Sidelines

They are calling it the financial community’s Desert Storm. Camp beds and food rations have been brought into bank command centers. Special subway trains and shuttle buses are running. Emergency crews are on standby.

To be sure, for many of these tens of thousands of euro soldiers, it’s hotel rooms and gourmet catering. Still, the bankers and traders are working around the clock in 12-hour shifts on Britain’s Wall Street to translate millions of prices and accounts into the new European currency before the first markets open Monday.

And this in a country that is not even going to use the euro.

The monumental operation--three years in the planning for Lloyds Bank and others--illustrates the predicament of many businesses in a handful of European countries: They’re out, but they’re in.

Britain, Sweden, Denmark and, reluctantly, Greece are not parties to the common currency being born today. But their financial companies, import-export firms and tourism enterprises--and many other businesses--must prepare almost as if they were based in the 11-member Euroland.

“Fifty percent of Britain’s imports and exports are with Europe, so clearly U.K. businesses are going to be affected,” said Colin Hemsley, Lloyds Bank’s regional international business manager.

“We will be offering euro account services, euro currency checks, euro borrowing services. . . . We will be ready and able as a major bank for commercial purposes and as a leader in exchange markets,” Hemsley said.

In the new euro jargon, the holdout countries are known as the euro skeptics. Britain, Sweden and Denmark have opted out of the euro for the time being. Greece wanted to join but did not meet the fiscal requirements to make the first wave.

Whether these countries join the euro at a later date will depend largely on the success or failure of the new currency. But many euro supporters argue that the new currency is unavoidable. It may be a virtual currency now--bills and coins will not be issued until 2002--but it is happening. So better to join sooner rather than later, they say.

Businesses outside the euro countries face higher interest rates--twice as high in Britain as in Euroland--and the risk of fluctuating exchange rates, which their Euroland competitors will not have to contend with.

Prices will be more transparent inside the euro countries, supporters say, so producers can seek the best deals from their suppliers. They also can try to sell to a larger European market.

But this is about much more than business.

A variety of political and economic reservations prompted the northern countries to wait. At the root of their decision is fear--fear of losing sovereignty and levers for controlling their own economies, fear that the new currency will be unstable, fear that diverse European countries, which cannot even agree on a common electrical plug, will not be able to pursue common economic policies.

Sovereignty is the most emotional issue for the euro skeptics. Money is a powerful national symbol. Britons are accustomed to seeing their queen on their pound notes, but the paper euros will be generic--no monarchs or other country symbols allowed.

Many Britons, Swedes and Danes see the euro as a step toward a federation of European states to which they do not wish to belong. They worry that they will lose the right to determine their own tax rates and laws governing the workweek and shop hours.

In short, they worry about their independence.

“I am clear about the economic advantages of European integration, but the political consequences have not been discussed,” Swedish Prime Minister Goran Persson said at a November meeting of the Nordic Council, which groups together five Scandinavian countries.

Britons can be somewhat less diplomatic about what they see as the historical and cultural differences separating their country from others in the European Union. Half a century after World War II, there is still an underlying distrust here of Germany, which assumes its turn at the European Union presidency this month, and concern that a strong German-French axis will squeeze Britain out of important decision-making.

“The core countries were either brutal aggressors or collapsed ignominiously,” asserted Roger Alford, a specialist in European monetary union at the London School of Economics. “Britain never collapsed before a brutal aggressor. In fact, we joined the winning side. We are different. We have a different set of traditions with clear and deep-seated laws and practices in business. So there it is.”

The Sun tabloid, leading the anti-euro crusade in Britain, has given voice to these phobias in such recent covers as one featuring a picture of German Finance Minister Oskar Lafontaine and the headline--written in German--”Is That the Most Dangerous Man in Europe?”

British Prime Minister Tony Blair has tried to walk a tightrope between the anti-euro forces and his own enthusiasm for closer ties with Europe. He has ruled out adopting the single currency before the end of this Parliament, which will run to mid-2002 at the latest, and promised a national referendum on the issue. But his Labor government has gradually stopped talking about “if” Britain will make the change and begun talking about “when.”

Blair and his economic team believe monetary union will bring about healthy competition for trade and investment across Europe. Moreover, they see the euro as a fast train about to pull out of the station: If Britain wants to be a leader in Europe, the country has to be a co-conductor at least.

“I believe that our interests lie clearly in Europe and that the best policy for Britain is to engage constructively in order to argue effectively for the type of Europe we want,” Blair wrote in the Times of London last month.

Euro opponents say Britain’s maritime economy is more like America’s than those of its European neighbors’, which tend to be more centralized, bureaucratic and protectionist, with bigger and more expensive welfare systems. Blair’s response is to urge patience.

The Blair team believes that its pragmatic, wait-and-see approach will win over nonbelievers. The euro will get off the ground, the public will grow accustomed to it, and doubters--about half of all Britons are opposed to adopting the euro--will come around.

Economic analysts do not see any short-term harm to this approach, so long as Britain does not remain outside for too long. Otherwise, they say, the country risks becoming irrelevant--a small player on the edge of a large single-currency zone.

“Will the City of London lose out as the European financial center?” asked Douglas Godden, an economist with the Confederation of British Industries. “I don’t think so. It’s got the momentum. It will be the leading center dealing in the euro from the start, despite the fact that Britain is not joining, because of the sheer volume. It is where most foreign exchanges are done. There is a lot of expertise here: a low regulatory environment, low taxes and the English language.”

Danish voters seem to feel more secure on the margins of the euro--at least so far. Danes refused to approve the Maastricht Treaty on greater European integration in a 1992 referendum.

“The issue for most people here is the question of where sovereignty ends--whether they can be certain that a common policy will involve only monetary issues and not other matters,” said Henrik Fugmann, head of the international department of the Danish Ministry for Economic Affairs.

His ministry issued a report last year projecting the consequences for Denmark of holding on to its currency, the krone: primarily, higher interest rates and a degradation of Denmark’s political clout within the European Union.

Recent opinion polls in Denmark suggest that voters may be warming toward the euro, however. The Danish parliament recently adopted legislation allowing the use of the euro for accounting purposes in business. And for the first time in five years, Prime Minister Poul Nyrup Rasmussen has hinted that a new vote might be on the horizon.

Sweden’s Social Democrat-led government has not even brought the issue of using euros to the voters, but it plans to embark on the first national debate on the subject this year.

Stockholm’s euro-skeptic approach to monetary union was a divisive issue in the September parliamentary elections, which saw the leading Social Democrats lose ground to the environmentalist Greens and the formerly Communist Left Party, both profoundly anti-euro.

“We want decisions to be taken as close to the people as possible, and the European Union is moving in the wrong direction, farther away from the people,” said Marianne Samuelsson, co-leader of the Greens in Sweden.

But here, too, public opposition is thawing. Center-right parties argue that Sweden must not cut itself out of the prosperity and benefits expected from a common currency. An October survey of more than 1,000 Swedes found 40% in favor of monetary union, compared with only 29% in January.

Greece, meanwhile, is champing at the bit to become the 12th member of the economic and monetary union. Adopting the euro has been one of Prime Minister Costas Simitis’ priorities since he came to power in 1996, and he hopes the country will do so by 2001.

The government devalued its currency, the drachma, by 14% last March and has cut public spending. Those moves have been applauded by European markets but have provoked strikes and trade union protests, which briefly brought the country to a standstill in December. Simitis is holding his ground.

The government has cut welfare benefits and started selling off state companies in an effort to meet the criteria for entry into the euro. That’s progress, say bankers and the president of the European Commission, Jacques Santer. But still not enough.

Yannos Papandoniou, Greece’s minister of finance, told the Hellenic American Chamber of Commerce last month that the country will bring inflation down from its current level of 4.7% to 2% by the end of this year, overcoming its biggest hurdle to entering the euro.

Greek business is gung-ho. A Federation of Greek Industries poll taken shortly after the drachma’s devaluation showed that 92% of firms were unreservedly in favor of adopting the euro; 80% said a policy for the quickest possible entry into European monetary union should be applied, even if it means sacrifices. They have agreed to price restraints on everything from Big Macs to designer clothes to air conditioners.

But the euro’s biggest boost would come from Britain, the world’s fifth-largest economy. And some companies here are ready and waiting. Retailer Marks & Spencer will accept payment in euros. Harrods has new cash registers that will accommodate the new bills once they’re printed, although for now payment will still be in pounds.

That’s because advocates say it is only a matter of time before the euro makes its way across the channel to Britain.

“The euro will penetrate this economy down the supply chain,” said Kenneth Clarke, a Tory member of Parliament and a euro fan. “It is easy to whip up nationalist feelings. There is opposition on the hard right and hard left. . . . But the euro skeptics themselves know they are likely to lose. That explains the stridency of their campaign.”

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Times Berlin Bureau Chief Carol J. Williams and Times researchers Christian Retzlaff in Berlin, Janet Stobart in London and Maria Petrakis in Athens contributed to this report.

* COMMON GROUND: Western Europe today launched the euro, a giant step toward unity. A1