LONDON (AFX) - The EU's finger-wagging at Ireland over its budget and at the UK over its projected budget deficit has not helped the UK's prospects of joining the euro zone, according to analysts.
The analysts said yesterday's criticism of Ireland and the UK at the EU economic and finance ministers meeting in Brussels will not endear the notion of euro entry to the already-sceptical British public.
A Mori survey at the weekend showed 57 pct of respondents opposed to UK participation in the single European public.
Just as the government appeared to be cautiously committing itself to a referendum on euro entry should it win the election expected in May, Ireland became the first EU member state to be told to alter its budget so as not to fuel economic overheating and inflationary pressures.
UK chancellor Gordon Brown also met with criticism from his EU colleagues for plans to increase public spending from 7 bln stg last year to 18 bln stg in 2003-4 which would mean a budget deficit of 1 pct of gdp in 2004.
4CAST forex specialist Paul Bednarczyk said yesterday's EU developments will do nothing for the UK's prospects of entry into the euro.
"It's not going to help with the public as the EU wagged their fingers at us as well, not just Ireland. They said, you're not allowed to have a big budget surplus, you're not allowed to have a successful economy. That's not going to help whatsoever," he said. "I think Mr Brown was a little bit cheesed off yesterday. And I should imagine that any europhile would be pretty cheesed off as well because that does smack of interventionism," he said. Barclays Capital global chief forex strategist Brian Martin agreed. "People here in Britain will be watching this issue quite closely to see what force the EU would bring to bear if the UK joins the euro," he said.
Martin said the public will not like any sign that the UK would not be able to maintain relative fiscal autonomy if it, like Ireland, was part of the euro zone. "I don't think yesterday's events do anything to help the case for euro participation," he said. Halifax chief economist Adam Chester said the EU's stance on Ireland would reinforce the British public's view that euro entry would mean an end to British sovereignty. "As far as public perception is concerned, it underlines the view that membership of economic and monetary union would put economic independence at risk.If that's the case, people are not going to support EMU," he said. 4CAST's Bednarczyk said the timing was particularly unfortunate as prime minister Tony Blair appeared to throw his weight behind the euro last week by pledging to decide within two years after the election whether to hold a referendum. Blair is also reported to be under pressure from senior executives of 20 multinational companies to step up the government's commitment to the euro. "The government is dipping its toe in the water and the water is full of sharks," he said. Chester, of Halifax, echoed his view. "The EU was trying to underline their credentials and to show that they are their to police the EU states and to enforce their fiscal guidelines. But the timing was not very comfortable for the UK government." The euro looks set to become an election issue as the Conservative Party opposes entry, at least in the next parliamentary term. However, Bednarczyk, of 4CAST, believes the impact of yesterday's events could be shortlived. "I should imagine it will all blow over fairly quickly. It won't stick in the public's psyche for very long, but it's not very helpful."