11 June 2001, 18:08 UK unlikely to join EMU during current parlament
By Philip Uglow
LONDON (MktNews) - Despite continuing market speculation that the
UK could shortly adopt the single currency, a majority of City analysts
believe that the UK electorate will not be persuaded to give up the
pound.
In a survey conducted Friday by Market News International, 10 out
of 15 analysts said that they thought the UK would not join the single
currency within the life of the current parliament (2001-2006). One
analyst thought that there was a 50% chance of entry.
A majority of those polled also said that they felt Blair would
call a referendum on the issue, although they noted that he would be
unable to persuade a largely eurosceptic electorate of the perceived
benefits.
Nine out of 15 analysts surveyed said they expected a referendum to
be held within the next five years, with most expecting it to take place
in Autumn 2002.
"There is clearly a big push from the government trying to convince
the public that EMU is a good thing. However, I think it will be an
uphill struggle and I am not convinced that opinion will move
sufficiently to win a referendum," said Philip Shaw, Chief Economist at
Investec.
Shaw believes that Prime Minister Blair will not even get as far as
calling a referendum on EMU membership for fear of losing. He added that
it is quite possible that the government will argue that the five
economic entry criteria will not be met.
Chancellor Brown has laid down five key tests which need to be met
before the UK joins the single currency. These are: are business cycles
and economic structures compatible; if problems emerge is there
sufficient flexibility to deal with them?; would joining EMU create
better conditions for firms making long-term decisions to invest in
Britain?; what impact would entry into EMU have on the competitive
position of the UK's financial services industry?; and will joining EMU
promote higher growth, stability and a lasting increase in jobs?
Julie Collins-Thompson, economist at BNP Paribas, argues that Blair
will probably call a referendum, but will be unable to drum up enough
support for EMU.
"There's a good chance that we will have a referendum given the
Labour push, but I'm not convinced that the "yes" campaign will win,"
she said.
Collins-Thompson added that even the Danes, who are probably the
most pro-European of the EMU 'outs' could not persuade the public to
abolish the krona.
A minority of analysts disagreed. John Butler, UK economist at
HSBC, markets argues that if the government keeps pushing the euro
argument they can easily win it. He notes that recent opinion polls on
EMU entry have already shown a swing towards the pro-EMU camp.
Asked at what rate they thought sterling would enter EMU if the UK
did actually adopt the single currency, most analysts thought a rate of
Stg0.67 was likely. This is nearly 10% below current levels.
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