Euro Debate Divides UK

Dec. 21, 2004
Rumblings hint at high price of nonparticipation.

The protesters stood in the rain, hoping a television camera would appear to validate their patience. They carried signs accusing a former chairman of Great Britain's Conservative -- or Tory -- Party of treason. His crime? Endorsing the ruling Labor Party's pro-Europe stance on entry into the so-called euro-zone, which broke with his own party line. The attack on former chairman Christopher Patten last fall was not the first time the argument about the United Kingdom's entry into Europe's economic and monetary union (EMU) has grown ugly. Nor will it be the last. The debate has caused former Conservative Prime Minister John Major to label the current Tory attitude toward Europe "absurd and crazy." It has caused the defection of former Tory ministers to a pro-Europe (but not necessarily pro-euro) group led by Prime Minister Tony Blair himself. And it has caused a deep split in Britain's business community, a divide that has prompted two leading trade groups to fling insults back and forth. And the argument is just beginning, with no likelihood of abating before 2001 at the earliest. When the dust finally settles, Britons will have been forced to look hard at their place among the nations of the world and, possibly, to abandon one of the last symbols of the empire on which the sun never set. The question of whether Europe's second-largest country and third-largest economy should become fully involved in the experiment of European Union also will have serious repercussions within British industry and, indeed, industry all over the world. Ford Motor Co. CEO Jacques Nasser has warned that the automotive giant might look elsewhere if the UK does not drop the pound sterling in favor of the euro. "When we sit down and think about a major investment, our assumption is that the UK will be within the euro-zone at least at some time during the lifetime of the investment," Nasser says. The head of Nissan's British operations has made no secret of the cost that could be borne by auto-parts suppliers if the UK remains a euro-outsider. Indeed, BMW -- which owns the British automaker Rover -- recently announced that it would source up to 2 billion outside of the UK, in part because the strength of sterling makes buying British-made parts too expensive. One ominous sign -- cited often by those who embrace the idea of Britain joining EMU -- is a statement from the man who holds sway over Nissan's plant in Sunderland, a plant that has earned accolades as Europe's most productive. Commenting on Nissan's investment of 200 million to build a new model there, Nissan UK managing director John Cushnaghan told reporters that Sunderland won the new model "in spite of sterling, not because of it." "Sunderland cannot expect to keep winning projects in three, four, five years' time if the present-day relations exist," Cushnaghan said. But the business community -- like the British public -- is far from united on EMU. The two main industrial trade groups -- the Confederation of British Industry (CBI), which has backed Blair's posture toward Europe, and the more conservative and euroskeptical Institute of Directors -- have been engaged in a war of press releases over the UK's adoption of the euro. Also doing battle are two freshly hatched organizations with roots in British commerce. Britain in Europe, which has as its figurehead the prime minister, represents the interests of those businesses that believe integration into the larger European Union is vital to the continued economic might of the United Kingdom. Offering opposition is Business for Sterling, which has vigorously advocated maintenance of the status quo. At the CBI annual conference in October, the two organizations were among the most aggressive in making their cases to delegates. Among the more acrimonious exchanges between the organizations came when newspapers reported that the Britain in Europe campaign was urging its members to buy stocks in companies headed by leading figures from Business for Sterling so that the pro-euro people could embarrass the euroskeptics with questions at stockholders' meetings. The exchanges will continue, most likely through this year and into the next. In the end, the question of whether Britain will embrace the euro may come down to its willingness to abandon one of the trappings of its imperial past -- and its insistence on being a difficult outsider -- in favor of closer ties with Europe. Opponents of a more ardent embrace of the Continent point out that the UK follows a different model, one of less regulation and lower taxes, than the one that guides most other European countries. They also point to the slide in value of the fledgling currency since it was launched at the start of 1999. After debuting at a value of nearly US$1.20, the euro closed the year just a hair's breadth above parity with the dollar. Also hurting the pro-euro argument are unhappiness in Britain over a European Union plan regarding tax witholdings and the ongoing refusal of France to lift a ban on imports of British beef. The issue will only be decided by a national referendum, and that's not likely to happen until 2001. The decision of when to vote on the euro is up to Blair, who has maddened the most euro-friendly Britains with his apparent ambivalence about the single currency. Labor had campaigned on a goal to push for early entry into EMU, but Blair and company pulled back after the party was bloodied during local elections last year. Now, Labor's line is that Britain will not vote on the euro until the economy of the UK has met five tests of "convergence" with the economies of the euro zone. The argument about convergence was met with scorn by euroskeptics, and even some pro-euro forces saw it as merely a way of buying time. But it's small wonder that Blair has been treading carefully. As one observer wrote early this year, "A slip in euro policy could destroy his government."

Sponsored Recommendations

Voice your opinion!

To join the conversation, and become an exclusive member of IndustryWeek, create an account today!