The pound versus Euro

As economic woe is mounting across Britain and the pound is edging down to near parity with the euro, euro-entry supporters believe that sailing on the euro big ship would make Britain better stave off the impact of recession.

The pound has lost 30 percent of its value against the euro since 1999 and is now worth only 1.05 euro. Lord Lea blames the pound's sharp depreciation on Britain's higher public fiscal expansion than other European countries.

A devalued pound is a double-edged sword. It benefits British exports, but will make domestic customers pay more for imports. Meanwhile, Britons will find their overseas holidays much dearer and not as cost effective as before. The cheaper pound will enlarge Britain's deficit with the EU, which is a leading trade partner of Britain. Moreover, it will also force Britain, a net importer of both oil and natural gas, to pay a higher price for energy imports.

The pound's fast plunge began in October 2008, when the downturn started to bite hard. Britain's interest rates having been cut to a historical low and the launch of a second banking bailout package has resulted in further depreciation of the pound following a slight gain at the beginning of the year.

However, euro-entry critics believe that the downturn will be a temporary story and Britain will recover to its economic and financial positions in a few years. Lord Lea does not share the same optimism, saying that there is a slim chance that the pound will rebound to its favorable position against the euro.

Though the euro has its upside, including reduced transaction costs, it turns out to be not fully satisfying some strong member countries.

"The significant difference between rich and poor countries badly influences the euro as the rich ones have to support some of the poorer countries," said Professor Hartleben.

In response, Lord Lea said, "Clearly, there is a debate involving in particular France and Germany about the effects of picking up other countries' bills, but there has also been an increase of European community solidarity."

Entry of Euro encouraged 

It has been widely acknowledged that in the foreseeable future, the eurozone, rather than individual EU nations would be strong enough to stand up to the competition with other big players, including the United States, China and India.

Britain's favorable employment situation is another key reason behind Britons' reluctance to join the euro. Britain is one of the top four in the EU in its employment rate, ahead of France, Germany, Italy, Ireland and Spain.

However, the European Commission has forecast that Britain, in danger of sliding deeper into recession, will see its unemployment rate rise to 8.2 percent for 2009 from 5.7 percent for the whole 2008.

This means unemployment in Britain will be worse than in Germany, which will see a 7.7 percent unemployment rate in 2009, according to EC predication.

Britain will have a much more significant role in the European economic area if it becomes a full member of the eurozone, which looks likely to cover up to 90 percent of the 27 EU countries in a few years, Lord Lea predicted.

Britain's leadership on bank recapitalization and the coordinated fiscal stimulus is part of the country's further move forward toward the EU as a whole, he added.

The euro is a positive rather than a negative factor, said Lord Lea, thus urging his people to take a brave step to welcome the single currency as soon as possible.

However, the chances for Britain to join the euro may be dashed, since the eurozone may not want a sinking economy to enter their fold. Investment guru Jim Rogers has this week warned against investing in Britain and said that the pound is "finished".

(Xinhua News Agency January 23, 2009)