Right rate is crucial to EMU

Britain’s entry into European and Monetary Union should be as rapid as possible but must be at a competitive conversion rate, according to a survey of manufacturers of printed circuit boards and their suppliers at a recent industry conference. Delegates said reduced transaction costs and less exchange rate volatility were the main advantages of joining. […]

Britain’s entry into European and Monetary Union should be as rapid as possible but must be at a competitive conversion rate, according to a survey of manufacturers of printed circuit boards and their suppliers at a recent industry conference.

Delegates said reduced transaction costs and less exchange rate volatility were the main advantages of joining. But a competitive conversion rate would be crucial.

European financial markets have been speculating a future entry rate for sterling of about DM2.55 2.65. But banking sources say Germany would prefer a level nearer the DM2.85 2.90 rates which have been pricing some British exporters out of Europe, and cutting manufacturing profits.

UK manufacturers also face pressure on prices and greater market transparency in the wake of the first wave of countries joining EMU next year, warned John Phipps, regional international business manager with Lloyds TSB group.

‘Price lists can vary by 40% across Europe,’ he told delegates, with some of the lowest prices to be found in southern European countries.

British suppliers could also wait much longer for payment as credit terms are likely to converge as the supplier base broadens, said Phipps. Average credit periods range from 68 days in Spain to 19 in Finland. Both will join the first wave of EMU in January 1999.