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European Affairs
European Integration
Leaders of "Out" Countries Hope for Eurozone Success
By Alasdair Murray
As the twelve members of the European Union's single currency zone fretted over the introduction of euro bills and coins this January, the three EU members that stayed outside watched with almost equal anxiety.
For while Britain, Denmark and Sweden, the so-called "outs," have chosen not to participate directly in the final stages of Economic and Monetary Union, they cannot avoid its economic and political impact. As Tony Blair, the British Prime Minister, made clear in a recent speech, "the euro's success is critical for us all."
The pro-euro stance of the leaders of these countries remains to a greater or lesser degree out of step with their skeptical electorates. Each leader is hoping that voters will begin to warm to the euro now that it has finally become a concrete reality. (Hitherto, the euro has existed primarily as a unit of account for financial transactions, such as the issue of bonds and financial transfers.) In particular, there is a growing expectation that the euro will become a de facto second currency in all three countries - a process dubbed "euro-creep."
The success or failure of the changeover will undoubtedly flavor the often fractious debate about euro membership for much of the coming year. Britons opposed to euro membership, for instance, are keen to display the introduction of the new currency as a costly and cumbersome process. And it is true that a transition as large and complex as the simultaneous introduction of the euro in twelve different countries has never been attempted before.
The governments of the three "outs," on the other hand, are hoping the transition will go as smoothly as possible - preferably as easily as Britain's move from its traditional pounds, shillings and pence to a decimal currency in 1971. For a relatively painless transition to a "hard" euro is emerging as a key element in their various plans to hold referendums on joining the single currency.
The arrival of euro bills and coins is likely to mark a psychological turning-point in the argument. The fierce debate over the euro in the "out" countries has raged for almost a decade in purely theoretical terms. Now, at last, the hordes of Britons, Danes and Swedes who take vacations in the eurozone, which covers most of Western Continental Europe, will have the chance to get to know the new
currency in practice. British vacationers alone make around 40 million visits to eurozone countries each year.
Many people believe that the mundane reality of handling actual bills and coins will make the euro seem less frightening. An analysis of the No voters who won the Danish euro referendum in September 2000 suggests that their opposition to the single currency was based as much on fear of change and a lack of understanding of the major issues, as it was on an unyielding commitment to preserving national currencies.
Pro-euro campaigners believe that it will be far easier to ground the euro debate in practical realities - and in particular to convey what the "outs" are missing - once bills and coins are actually in circulation.
Almost as important to this process of "euro-creep" will be the expected rapid spread of euro bills and coins within the "out" countries. In Britain, the euro will be accepted at outlets as diverse as Harrods luxury department store, BP gas stations and the Main Street retailer Marks & Spencer. Even Dixons, a chain of electrical stores run by a prominent anti-euro campaigner, Sir Stanley Kalms, has confirmed it will be happy to take the new currency.
In fact, a recent survey suggested that as many as half of Britain's retailers aim to be able to accept euros from the 13 million people from euro-zone countries who visit the UK each year. In Sweden, major retailers and even some leisure companies have gone one step further and promised to provide dual pricing on goods and menus.
Many small businesses in the "out" countries will also have to learn quickly how to deal with the euro, even if they are not major exporters to the eurozone. In Britain, for example, auto manufacturers such as Vauxhall and Toyota have said they will in future pay all their suppliers in euros in order to reduce currency costs.
While this process of "euro creep" should help to reduce opposition to the single currency, it will not be sufficient to ensure that Britain, Denmark and Sweden finally join the eurozone. The governments in all three countries still face formidable political obstacles to euro membership.
In Demark, the new right of center Prime Minister, Anders Fogh Rasmussen, has said he will not hurry to hold a new referendum. Although opinion polls now suggest that Danes would vote narrowly in favor of euro membership, the bruising experience of the previous No vote makes the government highly unlikely to hold another poll unless it is very confident of a positive response.
There is a strong possibility that Denmark will now await the outcome of a referendum in Sweden or Britain before putting the single currency to the vote again.
In Sweden, opinion polls are becoming increasingly favorable and Göran Persson, the Prime Minister, has hinted at holding a referendum in 2003. Unlike the Danish currency, which is linked to the single currency anyway, the Swedish krone has fallen heavily against the euro in the past year.
Nevertheless, there is still strong grassroots opposition to the euro within Mr. Persson's Social Democratic Party, and the general election scheduled for next autumn could yet derail his referendum plans.
It is Mr. Blair, however, who faces the toughest challenge. Although Mr. Blair has sounded increasingly positive about the single currency in recent months, opinion polls show that a large majority of Britons would vote No in a referendum. Unlike Denmark and Sweden, a significant proportion of the press, as well as the opposition Conservative Party, are against joining the single currency.
Mr. Blair's powerful Chancellor of the Exchequer and leadership rival, Gordon Brown, also remains un-persuaded of the merits of euro membership.
Pro-euro politicians in Britain fear that, despite the expected benefits of the arrival of euro bills and coins, the eurozone could slide into recession during the next twelve months.
The perceived under-performance of the eurozone economy, especially in comparison with the United States, has been a key factor in fostering anti-euro sentiment in Britain. It will be extremely difficult to persuade British voters of the merits of euro membership if Europe continues to suffer economic woes.
The British government also has severe doubts about the ability of the eurozone's existing institutional structure to respond effectively to an economic downturn. In particular, British officials have been concerned by the European Central Bank's apparently slow response to the economic fallout from the September 11 terrorist attacks.
The British Treasury is also highly critical of the terms of the EU's Stability and Growth Pact, fearing that they may prove too restrictive in an economic slowdown. The Pact prescribes the actions that the EU may take against eurozone governments that breach a three percent budget deficit limit, including the possibility of fines.
Ironically, Germany, which was instrumental in establishing the Pact's strict rules, is likely to come perilously close to this deficit ceiling in 2002.
Some eurozone countries, most notably France, share these concerns. As a euro "out," however, Britain has little hope of being able to force reform. Instead, the government will be left sitting on the sidelines, praying that its euro referendum hopes are not scuppered by a eurozone recession.
For this reason, the British government will be hoping, above all, that consumers across Europe take to the new euro bills and coins fast enough to ensure that the eurozone economy rapidly returns to growth.