Britain and the euro

Chancellor Gordon Brown has five litmus tests for euro membership

LONDON, England (CNN) -- The euro is already a fact of life for much of Europe. But in Britain, which has remained on the sidelines of the single currency since its launch in January 1999, the debate over the merits of monetary union rages on.

Three countries are staying out of monetary union in the first wave -- the UK, Sweden and Denmark.

Sweden is quietly laying the groundwork for a membership bid, with an eye to a possible referendum before or after national elections in 2002.

Denmark rejected membership in the euro in a September 2000 referendum.

(Greece failed to gain entry in the initial accession wave on economic grounds but later joined in January 2001.)

ALSO Head to Head Should the UK join the single currency? Would NAFTA be a better alternative?

In Britain, some of the scepticism over European monetary union is rooted in recent history.

The UK's last move into currency partnership with its European neighbours -- when it joined the Exchange Rate Mechanism in 1990 -- ended in failure two years later after currency speculation sent the pound plummeting, prompting Britain to bail out.

Those against monetary union also argue that Britain's economy has fared admirably well in its time on the sidelines.

The pound, they point out, has appreciated about 12 percent against the euro since the single currency launched in January 1999.

Meanwhile, inward investment in the UK soared to record levels, according to the 2000 annual report by the government agency Invest-UK.

Of the 757 investment projects reported by the survey, the United States accounted for just under half, followed by Germany, with eight percent, and Japan, at 7.7 percent. Sterling's supporters say this is proof of Britain's ability to go it alone.

Euro supporters concede an element of risk. But they say it pales in comparison to the danger of Britain being left on the sidelines of an integrated Europe.

Euro enthusiasts in groups such as Britain in Europe (BiE) -- a broad-based coalition that includes politicians, union members and entrepreneurs -- say adopting the euro would lead to lower inflation and interest rates, the creation of more jobs and greater economic stability.

Britain's trade in goods and services with the 15-nation EU, BiE says, is worth £120 billion -- or more than half of the country's global total. The group estimates that three million British jobs depend on this trade, generating one-seventh of Britain's income.

A third way?

Some say Britain is looking the wrong way in the euro debate, and should instead be looking towards the United States.

Michael Fabricant, a Tory member of parliament, backs the idea of a British alliance with NAFTA -- the North American Free Trade Agreement between the United States, Canada and Mexico.

"The UK economy is more synchronous with that of the United States, we are not at all synchronous with continental Europe," he says.

A British move to join NAFTA would violate its treaties with the European Union. But Fabricant says renegotiating its relationship with Europe would be a small price to pay for the potential economic rewards to be derived from closer economic ties to the world's leading economy.

The view from Downing Street

Sterling's supporters argue the British economy has fared well without the euro

Prime Minister Tony Blair says he favours the euro "in principle", but is awaiting a verdict from his Chancellor of the Exchequer, Gordon Brown, who has devised five economic criteria for assessing whether Britain should join the euro. If the criteria were met, a referendum would be held after the June 2001 general election.

With opinion polls showing up to 70 percent of the British public opposed to membership of the single currency, Blair is often viewed as wary of publicly supporting a cause that has little public support.

In June 2000, a senior government adviser warned that British manufacturers faced economic "meltdown" unless the country joined the euro.

The warning -- characterised as a "leak" in newspaper reports -- had been preceded less than 48 hours earlier by a telegram from Britain's ambassador to Japan warning that Japanese companies would abandon Britain unless it took part in the euro.

Blair threatened to fire anyone implicated in the leak -- even if the guilty party turned out to be one of his own ministers.

The Daily Mail newspaper ran a Scotland Yard-style advertisement offering a reward for information leading to the capture of the culprit who leaked the memo.

Another right-leaning newspaper, The Sun, used the episode as the basis of an anti-euro editorial lambasting "unscrupulous ministers" who it said were "out to strike fear into the British people."

Roy Greenslade, a media analyst and former editor of The Daily Mirror, says he is at a loss to explain the virulence of much of the media's treatment of the issue.

"There seems to be no real reason for it. I have a feeling that what popular newspapers fear is that they will lose control of their audience.

"I think the broadsheet opposition is less commercial and more political. They really do believe that this will be the end of Britain -- what this is saying is that it would be the end of empire."

The future

ECB chief Duisenberg says Britain is "suffering" by staying on euro sidelines

Most observers, however, foresee a gradual warming of public opinion towards euro membership.

Wim Duisenberg, chairman of the European Central Bank, stepped up the pressure on Britain to join when he told an Italian newspaper in July 2000 that Britain had already satisfied almost all the criteria for membership and could hurt itself by delaying a decision too long.

"The performance of the British economy is admirable but it is suffering a great deal by not participating in the euro," he said. "That said, the decision is one to be taken by the British people."

Hugo Young, a political commentator for The Guardian newspaper, says it is unlikely the euro debate will be resolved until after the next general election. Even then, he says, passage of a referendum -- if one is held -- will hinge on Labour being successfully returned to power and then making a persuasive case for single currency membership.

"I think it will be a very narrow thing, but I think the issue will be passed."