Pro-Euro business leaders are split over the rate at which the UK should join the single currency, as they step up pressure on the government to make an early decision on entry.
Automotive and consumer goods manufacturers have given figures ranging from DM3 to DM2.50 as the value at which industry could cope with sterling being pegged to the euro. But they agree that instability in the UK exchange rate and the strong pound is damaging industry.
Ian McAllister, Ford Britain chairman and MD, told The Engineer this week that the pound should come down to a value of DM2.50-DM2.70, or e1.28, before it joins the single currency.
‘The company has said that [the UK should join] for some considerable time. DM3.20 which is what it [£/DM] was when I last looked means the pound is severely overvalued relative to the euro, and that puts a significant burden on UK companies.’With endless instability it is very difficult for manufacturing to make the productivity gains to offset that,’ he said.
As The Engineer went to press the pound stood at e1.62/DM3.15, down 3.3% since the end of May, and would need to devalue by almost 20% more to reach McAllister’s preferred rate.
Niall Fitzgerald, head of Unilever, and leader of the business group of the Britain in Europe campaign, has said that business could cope with DM3 entry value. The CBI and the British Chamber of Commerce suggest a rate in between McAllister’s and Fitzgerald’s of DM2.80-DM2.90, or about e1.45.
‘A couple of years ago our members would have asked for a lower rate, but they have become more competitive in the face of a stronger pound and probably could cope with a rate of around DM2.90,’ a BCC spokesman said.
Commenting on the figures, Stephen Radley, chief economist for the EEF said: ‘An entry rate of around DM2.90 would not be ideal, but bearable.
These figures are backed up by an economic and monetary union report published this month by Deutsche Bank. Economist George Buckley said the entry rate should be between DM2.80-DM2.90 to the pound.
‘Sterling has eased off a bit in the light of the EMU debate. Its rate against the dollar is generally indicative of sterling being sold [in preparation for euro membership]. We expect pressure on the e/£ exchange rate to continue and in 12 months’ time the rate should be DM3 to the pound.’
But Buckley said that is dependent upon government backing a campaign to join the euro. The report states that Tony Blair is expected to launch a referendum campaign in the next six to 12 months and that the UK has a 60% chance of being in the euro by 2005.
This view is shared by McAllister who said politicians would have to start the ball rolling before company bosses join in. ‘You will find that once the debate starts, business will be vocal.’
Last week The Engineer reported that MORI’s Professor Robert Worcester expected a referendum in 2005 – after the next election. This would put entry back to at least the middle of 2008.
Worcester has since revealed that last week he had a meeting with Blair’s friend and confidante, Lord Faulkner, during which the prospect of winning a yes vote was discussed.
Pro-euro Robin Cook’s removal as foreign secretary is seen as a signal of the euro slipping down the political agenda.
Any referendum would require the government to convince the electorate that it had met its five economic tests. A study by Barclays Capital said because of Britain’s deep structural differences with eurozone economies, only one test, the effect on inward investment, could be met.