PracticeConsultingE&Y pushes euro as election issue

E&Y pushes euro as election issue

A study by E&Y's ITEM club says Britain will be ready to join the European Monetary Union by 2003, but urges the government to decide on the matter as early as possible after the next election.

The ITEM club, the economic forecasting group of Big Five firm Ernst & Young, said this would serve the dual purpose of imbedding the idea of joining the euro in the minds of the public and allow institutions and businesses time to be technically ready when the option to join is exercised.

E&Y economic adviser, Pete Spencer, said while it wasn’t necessary for Britain to commit to EMU until 2003, if it wanted to ensure convergence on the matter, the prime minister should begin campaigning now as it would take two years to convince the public to accept the euro.

The report highlighted the main economic benefits of EMU membership as being reduced transaction costs and lower exchange rate volatility, which would encourages strong expansion in UK trade with continental Europe – a potential gain of as much as 20% of GDP.

It said most economic indicators such as inflation, long-term interest rates and GDP growth, had already converged with the Eurozone, while those that have not, like exchange rates and short-term interest rates, would do so over the next year or two.

And while the UK would lose control over monetary policy, a fixed exchange rate will increase the effectiveness of fiscal policy.

According to Spencer, much preparation remains, especially in convincing a ‘sceptical electorate to vote “yes” in a referendum’.

‘The sooner the government takes a lead in this debate, the better,’ he said.

Links

Manufacturers still cautious about euro

Euro support slides among UK FDs

Analysis: Treading a path to the euro

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