“Companies invest in Britain because they want to be part of Europe, not outside it”
Prime Minister Tony Blair’s enthusiasm for taking Britain into the Eurozone is puzzling to many. Economists are leery of the Maastricht straitjacket the 12 have imposed on themselves, the British economy is humming along nicely while Europe stutters and the electorate is strongly opposed to swapping the pound for the Euro. But Blair never loses an opportunity to insist that “Britain’s destiny lies in Europe.” Britain will join the Eurozone once certain economic tests have been met and the time is right, he says.
The government programme for the new session of parliament, to be presented in the Queen’s Speech last Wednesday, was slated to contain an “interesting” reference to the Euro, cabinet member Robin Cook promised earlier, although Blair’s office was keen to play down this premature indiscretion. The evidence of the impact of the Euro on Britain is mixed. Protagonists on both sides trundle out their own statistics. Those in favour of the Euro prefer the information put out by Eurostat, the EU’s data office, and the proponents of sterling patriotically turn to Britain’s own Office for National Statistics.
Eurostat evidence is that since 1998, trade within the Eurozone has risen while Britain’s share of EU trade, measured as a percentage of gross domestic product, has declined. But the ONS shows a small rise in British trade with its EU partners. These notoriously unreliable trade data have always diverged, and analysts are wary of reading too much into them.
Of greater interest is foreign direct investment. Richard Layard, a pro-Euro professor at the London School of Economics, is adamant that Britain’s share of investment has since 1998 halved to 24 percent of the EU total from 52 percent. “Companies invest in Britain because they want to be part of Europe, not outside it,” he says, echoing calls from manufacturing industry in general and the motor industry in particular. Here the evidence appears incontrovertible, but manufacturing is a declining sector and makes up only about 18 percent of Britain’s GDP. Car manufacturing is a shadow of its former greatness.
The financial sector, and services in general, are now seen as much more important than lathes and foundries. London’s advantage as an English-speaking, well-regulated financial centre relatively free of state meddling is seen as key.
In the anti-Euro lobby, proponents say the Eurozone is imposing ever- greater economic policy coordination and this can only harm Britain. It welcomed European Commission President Romano Prodi’s judgement that the stability and growth pact agreed by Eurozone countries is “stupid.”
Britain’s macro-economic data – whether in inflation, government debt, unemployment, predicted growth over the next two years – all outperform the Eurozone, the sterling lobbyists say. In addition, the British labour market is more flexible and the Bank of England can react rapidly to domestic conditions without worrying about the effects on other countries. These arguments are telling among the electorate. Support for the Euro hovers at around a third and shows little sign of increasing.
Many voters are wary of the notion that Britain should adopt the Euro to help promote a strong Europe as a counterbalance, economically and militarily, to the United States, which they see as a key British ally. A controversial war looms in Iraq. Public concern is focussed on creaking public services and violent crime. There are growing signs of union unrest – the nemesis of past Labour Party governments.
Nevertheless, Blair presses on, putting at risk his own and his party’s high standing in the polls.
Despite all the other concerns since the September 11 attacks last year, he insists there is no reason to delay a promised referendum on the Euro once the economic tests are met, and he will not rule out holding one before the next election.