[A-List] UK eurozone membership: exporters weigh in

["Michael Keaney" <michael.keaney@xxxxxx>]

Johnston call to end UK's euro charade

Business leaders back single currency vote
By Ian Fraser, Financial Editor
The Sunday Herald, 18 May 2003

SCOTTISH manufacturers and business people have fired a warning shot across
the government's bows ahead of its long-awaited announcement on whether the
conditions are right for the UK to join the euro, scheduled for June 9.

Under a deal brokered last week, Chancellor Gordon Brown has agreed to
actively work to overcome barriers to UK entry so long as Tony Blair backs a
negative assessment of the five economic tests, originally set by Brown in
1997.

But Fred Johnston, chairman of Scotland in Europe and ex-chairman of
Johnston Press, warned that excluding Britain from the euro long term would
have devastating consequences for the UK economy.

Johnston said: 'The UK would fail to realise its pot ential. People would
become less wealthy and opportunities would be closed off. Increasingly, we
would become an economic backwater.'

He added: 'We have seen how inward investment to the UK has fallen. It's
down from 29% of the EU total in 1999 to 5% last year. What a triumph!'

James Walker, managing director of Walkers Shortbread, which has annual
sales of £60 million, said: 'To rule out euro membership would be a crime.
We're already at a disadvantage when trading in Europe.

'If membership has been ruled out, we'd be even further disadvantaged. We
would be particularly handicapped when expanding into eastern European
markets, most of which will be joining the euro.'

Walker added: 'The five economic tests are a load of nonsense. It is a
political rather than an economic decision.'

Geoffrey Maddrell, chairman of Unite Group and ex-chairman of Glenmorangie,
said: 'By preventing UK companies from adopting a stable European currency,
we are handing competitive advantage to our continental competitors.'

Both Denmark and Sweden may vote to join the single currency in referenda
this year and all 10 of the countries poised to join the EU intend to adopt
the euro. 'That means Britain could end up as the only country out of an EU
of 25 not using the euro. Inward investors would definitely start looking
elsewhere,' said a senior Scots businessman.

The Treasury issued its 18-volume, 2000-page assessment of the five tests,
described by one political commentator as 'the homework from hell', to
ministers this weekend. Europhiles among them, including Tony Blair, now
have until June 9 to persuade Brown that the door should be left ajar to a
referendum during this parliament, meaning before spring 2006.

The Treasury is likely to single out the differences between the UK and
European housing markets and the slow pace of structural reform in European
economies as key obstacles.

Euro supporters were reassured when Brown announced an inquiry, led by
Professor David Miles of Imperial College London, into how a culture of
long-term fixed-rate mortgages might be introduced to the UK during his
Budget speech. UK banks, for their part, would welcome a shift towards
long-term fixed-rate mortgages. A spokesman for HBOS said advantages could
include risk reduction and a marked downturn in 'churning'.

'It could be a win-win situation but it hinges on the design of the product
and is unlikely to happen overnight.'

However, one negative is the weak performance of many eurozone economies.
GDP figures for the first quarter 2003 show Germany to be in recession, with
negative growth also seen in Italy and Holland.

HSBC economist Robert Prior-Wandesforde said: 'The Treasury has taken the
view that the UK should not be part of something which is looking pretty
sickly now.'

Together with the recent slide in sterling, these factors have made some
formerly pro-euro groups review their commitment to the single currency. The
Confederation of British Industry has lately shied away from repeating past
support for the euro -- perhaps for fear of alienating members.

But Johnston detects signs of hope. He said: 'The five tests -- which are
anyway a bit of a charade -- may not have been fully passed. But the issue
now is whether a referendum might still take place during this parliament.
That is still perfectly possible. If not, it would have to be very early in
the next parliament ... It is better to get it right than to hold a
referendum prematurely and lose it.'

Until late 2002, Johnston recognised that the sterling-euro exchange rate
would have presented problems to euro membership but now feels that, with
the pound down 11% against the euro this year, that 'the exchange rate is
about right at the moment'.

Wali Tasar Uddin, chief executive of Britannia Spice in Leith and the
Bangladesh- British Chamber of Commerce believes it's too early to accept
defeat: 'We still have three more weeks to put pressure on the government
and to fight. We'll do this through whichever means, including Scotland in
Europe, Britain in Europe, and the chambers.'