Crystal ball gazing is always a dangerous pastime in politics. But what if 2001 is Tony Blair’s year? What if he persuades his party’s eurosceptic wing that a clear and unambiguous commitment to a referendum on membership of the single European currency should be written into Labour’s manifesto for a May election?
What if the PM then trounces the Conservatives in the polls, dismissing their calls for caution over the euro as outdated Little Englandism? And what if he then won a referendum for Euro membership as soon as practically possible?
If this political dream came about – and who would argue that this is not part of Blair’s night-time fantasies – then how quickly could the UK become a full member of the Euro-club?
The answer, according to the Treasury, is 40 months from the moment that a future British government takes the decision to enter until the pound is finally scrapped. This time is required partly by legal procedures laid down by European Union treaties and partly because of the need to prepare British business, and in particular financial services, and the public for the changeover in ways that would not be prudent before the referendum.
In fact the legal procedures for admitting the pound to the eurozone will be a lot shorter and simpler than those for the 11 founding members of the single currency, largely because the euro now exists as a trading currency.
The UK will also benefit from the technical role played by the Bank of England in helping set up the trading arrangements for the euro prior to its introduction at the beginning of 1999 and in maintaining the market since then. Once the government takes the decision to join the euro, the referendum is likely to follow within four months. If the result is positive, then the UK would be required as a first step to make a formal application to join the EU’s Economic and Monetary Union.
Under article 121 (ex 109j) of the EU treaty this requires the European Central Bank and the European Commission to undertake separate ‘convergence assessments’ of the UK economy. At the same time the commission would also make a recommendation on whether or not the UK fulfils the necessary conditions for adoption of the euro.
These conditions, known as the Maastricht criteria, are:
– ‘the achievement of a high degree of price stability; this will be apparent from a rate of inflation which is close to that of, at most, the three best performing member states in terms of price stability’
– ‘the sustainability of government financial positions; this will be apparent by having achieved a government budgetary position without a deficit that is excessive’
– ‘the observance of the normal fluctuations provided for by the exchange rate mechanism of the European monetary system, for at least two years’ and
– ‘the durability of convergence achieved by a member state being reflected in the long-term interest levels’.
The reports would also include an examination of the compatibility of the UK’s legislation, including the statutes of the Bank of England, with articles 108 and 109 of the treaty and the statutes of the ECB.
When the euro was created Britain and other non-participating countries were required to produce annual ‘convergence programmes’ covering four years into the future. Commission officials told Accountancy Age this week that as things stood, the UK convergence programme was ‘acceptable.’
But a question mark hangs over the treaty requirement that a country has to have been a member of the ERM for at least two years before entry into the euro.
Britain is not likely to have met this condition at the time that the government applies to join.
Some other EU countries may insist Britain accepts this requirement, which would obviously put off the UK’s euro membership for some time.
The official reasoning here is that if the rule is ignored other applicants might seek euro membership prematurely.
More likely however is that a political solution would be found to allow UK euro entry without the two year ‘probation’ period.
There is a precedent: when the euro was created neither Finland nor Italy fully met this condition. Assuming this matter is settled then EC and ECB reports would be submitted to a European summit meeting, which will be called on to determine formally whether the UK met criteria entry.
At the same time the proposals will be put to the European parliament which has the right to be ‘consulted’ but cannot veto the application.
The final decision will be taken by the council of economic and finance ministers (ECOFIN) under article 123(4) (ex 109l(4)) of the treaties.
If we assume the heads of government give their approval at the June summit of the year in question then, Britain would probably enter the euro on the first working day of the next calendar year. From then on the exchange rate between sterling and the euro would be locked.
Sterling would legally become a denomination of the euro with a fixed value. Under the timetable set for the 11 founder members of the single currency, three years were allowed before the introduction of euro notes and coins.
They are due to come into circulation at the start of 2002 with a period of two months for dual circulation before national currencies will no longer be legal tender.
The time between joining the single currency and the introduction of euro notes and coins would be much shorter for Britain than three years.
This is partly because the new currency will already have been in wide circulation by that time. A further important factor in Britain’s readiness for the euro is the UK government’s national changeover plan which has involved meticulous technical preparation by businesses and public departments since the new currency was launched.
According to commission officials, ‘technically and operationally the UK is as far advanced with regard to the euro as other member states were at the time of the launch in 1999.’
In terms of political and public opinion, it’s a different story altogether, of course. But clearly the EC sees no reason why British entry into the euro should not be swift and trouble-free so far as EU procedures are concerned.
Britain would be the 13th EU country to join. There is a possibility that Sweden could join at the same time – the Swedes have promised their people a referendum which may be held in the next two or three years.
Denmark, however, will not, having voted against euro membership in September last year.
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