The referendum in the City one year ago showed a staggering 85% of financial traders against the adoption of the Euro by the United Kingdom. Yesterday, a Director of the Bank of England reiterated the Euro-sceptic stance maintained by the governor of the same bank, Sir Edward George.
John Townend, the bank of England’s Director of the Department for Europe, stated that the UK would face great risks in the convergence policy towards the Euro. He declared that the process of joining the Euro was “not straightforward” and that there were “considerable risks” involved in calculating a new exchange rate between the pound and the euro.
As British pensioners spend their days voluntarily sticking British insignia to pound coins, which say “No Euro”, complete with the head of Queen Elizabeth II, the City issues more and more Euro-sceptical messages, while at the same time Prime Minister Tony Blair tries to talk some sense into the business community.
The deep-rooted reticence felt by this island population against adopting a currency perceived as “foreign” in first place and “Continental” in second, will be a problem for any government of the UK which tries to bridge the gap across the Channel regarding monetary policy. British citizens are firstly islanders and secondly Europeans. It should also not be forgotten that there is a substantial part of the population which considers that a Union with the USA and Canada makes more sense than joining the EU, which includes countries traditionally (in the last sixty years) hostile to the UK.
John Townend made his statement in Kuala Lumpur, Malaysia. He declared that an attempt to artificially weaken the British Pound (GBP) would be risky while at the same time admitting that the GBP was over-valued. An attempt to artificially weaken the GBP would set inflationary measures in motion and interest rates would rise accordingly, hitting the pockets of the average British citizen, wholly dependent on bank loans to buy accommodation. An increase in interest rates means a rise in mortgage repayments, often delicately balanced between precarious labour situations and other fixed payments, meaning that a significant part of the population of the UK is extremely vulnerable to interest rate increases.
The end of the line for the most vulnerable is house repossession by the institutions of credit which conceded the loan. This means that a family can begin buying a house on credit, but that when default occurs, for a certain time period, the house is repossessed and the payments made previously count for nothing. The family loses the money, the house and if no family or friends are available, the end of the road is the street.
For this reason, the UK must tread a wary path between wishing to join the Euro and the real scenario involving the need to lower the exchange rate to enter. This, according to John Townend, would be extremely risky because the exact figures needed to assure a “genuine sustainable convergence” would be extremely difficult to calculate since they would be eternally open to question.
While “virtually everyone suggests that a lower exchange rate against the Euro would be required for entry”, as Mr. Townend claims, since the GBP is “clearly overvalued”, “genuine sustainable convergence…would be bound to put strong pressure on UK inflation”.
Independent analysts in the UK predict that if the GBP does not reduce its exchange rate against the Euro, and joins Euroland, such a measure could cost the country 8 billion GBP in exports and a minimum of 150,000 jobs in the first three years after adhesion.
Tony Blair is intelligently treading a political and economical tightrope, trying to find the best option for the future, in a changing Europe, while remaining loyal to his election promises.
John ASHTEAD, PRAVDA.Ru LONDON UNITED KINGDOM