Brits Are of Two Minds on the Euro

Nothing illuminates Britain’s ambivalence toward Europe quite like the shiny euro.

Britain--along with Sweden and Denmark--has not adopted the common currency that will begin to circulate in the 12 other countries of the European Union on Jan. 1. Most Britons do not want to abandon sterling for the euro, and many think the Continent has made a colossal mistake in accepting the newly minted coins and bills.

At the same time, most Britons believe the country eventually will adopt the euro, just as they have adopted European tastes for pasta with sun-dried tomatoes and European laws on human rights.

Many British exporters already keep books in euros, and dozens of the country’s leading retailers say they will accept the currency at all or some of their British outlets. The list include Marks & Spencer department stores, Virgin record shops and Safeway supermarkets.

The JD Wetherspoon pub chain, whose chairman, Tim Martin, produced 500,000 anti-euro coasters and 10,000 “save the pound” posters, will accept the euro at its establishments in airports and near seaports.

“Taking the euro at Wetherspoon’s is like taking the dollar now, and the idea that this is going to somehow result in the euro becoming a national currency is a misunderstanding of economics,” Martin said.

As treasurer of the opposition Conservative Party, Stanley Kalms continues to “man the barricades” against Britain’s entry into the euro zone. But as chairman of Dixons, the electronics retailer, Kalms will put commercial interests ahead of politics, welcoming the European currency at selected British outlets catering to tourists.

‘Eurocreep’ Could

Take Britain by Stealth

This is what critics call “euro-creep.” They believe British retailers who trade in euros wittingly or unwittingly support Labor government efforts to introduce the common currency “by stealth.” Euro-skeptics worry that the more Britons use the currency, the more their resistance to it will erode.

That is exactly what euro supporters hope will happen. They say that once Britons experience the ease of traveling from country to country in Europe without having to exchange currency, and once they handle real euros rather than grapple with the virtual currency launched two years ago, they will lose their fear of it.

Supporters of the euro also say that European visitors to Britain and Britons returning from travels to the Continent effectively will convert the euro into a second currency here, in the same way the dollar functions in much of the world.

“The euro exists, and the problem for Britain is that, whether we want it or not, we have got to deal with it,” said Simon Buckby, director of the “Britain in Europe” campaign. “If the conditions are right, only a fool would turn his back on an opportunity for prosperity. And if the conditions are wrong, only a fool would want to join.”

It often seems Britons are more consumed with the issue of euro stability than are euro-zone residents, who appear to be indifferent or resigned to giving up their deutsche marks, francs, lire, pesetas and other national currencies.

“People are very aware the euro is happening here in Ireland, but there’s really not a lot of talk about it,” said Dublin Chamber of Commerce spokesman Jerry Minihane. “Far more people thought the world was going to end last year.”

Whether reluctant Britain will ever countenance the common currency is a matter of much speculation, debate and poll-taking. Most surveys on the euro show that about two-thirds of Britons want to hang on to their pounds and pence.

But an ICM Research poll conducted for the Guardian newspaper this month showed the same proportion--62%--believe it is inevitable that Britain will adopt the euro within 10 years. That figure was double the 31% who said so in November 2000.

The currency’s stability will be key to Britain’s decision. Opponents predict a volatile euro and Russian ruble-style crises. Advocates say time will prove the euro is a strong currency in the pockets of 350 million citizens.

The region’s general economic health also will factor into a decision, although a prosperous Britain could be a double-edged sword in the euro debate, observers say.

“If Britain continues to outperform Europe, it makes entry far more difficult,” said columnist Peter Riddell of the Times of London. “But there is a general political paradox if the only time you can join is when the economy is not as strong here as in Europe, because then the government is unpopular” and therefore less able to hold a successful referendum.

If and when Prime Minister Tony Blair’s government will hold a referendum on the euro is the $64,000 question, which seems to hinge as much on Blair’s tetchy relationship with his chancellor of the exchequer, Gordon Brown, as on the viability of the euro.

Blair, the more euro-enthusiastic of the two, has said he would like Britain to adopt the common currency as soon as five basic economic criteria have been met--a judgment to be made by the more skeptical Brown. The highly subjective tests, laid out by the chancellor in November 1997: whether the British economy is in step with other European countries; whether Britain has enough flexibility to make adjustments if it isn’t; and whether adopting a single currency would be good for jobs, foreign investment and the London financial markets.

No Euro, Less Influence

on Europe, Blair Believes

Last month, Blair reiterated that “Britain’s future is inextricably linked with Europe,” and he urged Britons to become “wholehearted, not halfhearted, partners in Europe.” He views the issue politically, believing that Britain’s influence on European policymaking would be greater if Britain were in the euro zone.

The chancellor understandably is looking more closely at the levers he has to control Britain’s economy and what he would relinquish to Europe by abiding by common economic policies. But he, too, is mindful of the political landscape.

Brown stepped aside to let the electable Blair lead the Labor Party in the 1990s but clearly yearns to succeed him at 10 Downing St. He is not likely to do anything to risk that succession and therefore is considered unlikely to approve a referendum on the euro unless he is convinced that the government will win.

“Because of their complicated personal relationship, this requires a psychologist rather than a political journalist,” Riddell joked. “In practice, he [Brown] has got a veto.”

But Blair, too, is risk averse when it comes to domestic politics. With the economic downturn and the government’s failure to improve public services, political and economic analysts say there is a 50-50 chance at best that Blair will hold a referendum on the euro before the end of this parliament in 2005. Failure to win a referendum could damage Labor in ways that the weak Conservative Party can only dream of right now.

“Public opinion is still very much against the euro, and unless that changes, it is very unlikely Britain will join in the next two to three years,” said Jose Luis Alzola, an analyst with Schroder Salomon Smith Barney. Most economic observers say that Britain has not paid a price so far for its unwillingness to join. The City of London remains Europe’s main financial center, Britain continues to draw its share of foreign investment, and the British economy is stronger than its counterparts’ in Europe. Opponents of the euro say this is proof that Britain need not jump on the bandwagon.

Advocates say that investors and EU neighbors have given Britain a grace period on the assumption the country will join one day. The question, they say, is, what will happen in the future if Britain continues to stay outside the euro and the new currency is stable.

“It is possible you will see some manufacturers relocate,” said Philip Whyte of the Economist Intelligence Unit, a London-based business research firm. “A lot of companies have invested here on the assumption that the U.K. eventually will join. If that decision keeps getting delayed, they may decide to up stakes and go to the Continent.”

Buckby, of the “Britain in Europe” campaign, said that the country also will begin to lose some of its EU market to competitors within the euro zone who no longer need to worry about the risk and potential costs of currency fluctuations. About 60% of Britain’s exports are to EU countries.

“Once you have joined the common market, you have removed virtually all the tariffs and trade barriers except for one--currency fluctuation,” Buckby said. “Twelve of our competitors have abolished that barrier.... Over time, that will damage our economy.”

Nonsense, responds Martin of Wetherspoon’s. The United States has a common market with Mexico and Canada without sharing a currency. Single currencies inevitably lead to single governments--a European superstate with a capital in Brussels in this case, he warns. There is no example in history of a single currency surviving in multiple states.

“The euro disobeys the laws of economics, and it will fail,” Martin said.

Many British retailers are not so certain. They say they will watch the euro and respond to consumer demand.