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 recovery 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 LordLea, 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."
