Britain Will Join The Euro

Trends are moving regarding Britain joining the Euro. British consumers already receive less than a euro per pound when they exchange money at airports and traveling agencies, which marks a tipping point in the long-held assumption of the pound’s superiority. This comes after a year when the pound lost 17% against the euro, following a dramatic lowering of interest rates by the Bank of England.

Assessment
The persistent devaluation of the pound is expected to prompt a shift in public opinion towards backing joining the euro. It is, however, very unlikely that will happen before the next government is well into its mandate. Admission of the UK to the Eurozone in the context of the discussion of the EU’s budget for the period 2014-2020 seems a likely scenario. Considering that London will host the Olympic Games in 2012, this comes like a probable date.

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5 Responses to “Britain Will Join The Euro”


  1. 1 NC December 29, 2008 at 12:11 am

    My dear friend:

    1-Britain will never join the Euro, mainly because its coin is as (ir)relevant as their queen is. They don’t have any true value, but they have a huge symbolic/psychological value. Without them, Britain would never be Britain.
    As history made us aware, the british consolidated their national identity by puting in play a double face game. Would you tell me: in a black and white world, would Britain be more European or more American? You can’t truly reply to this question, because Britain is both and is none. At the end od the day, Britain is just Britain, the most egocentric place on planet Earth (you know, even Greenwich is located there…). They won’t circulate dolars and they won’t circulate euros. They will always circulate pounds.

    2-Taking into account the deregulation fear that invaded the public opinion, how do you think that the british people would react to the possible transference of regulatory powers from the Bank of England to the European Central Bank (which would be required when joining the Eurozone)?

    3-You say that “The persistent devaluation of the pound is expected to prompt a shift in public opinion towards backing joining the euro”. Are you able to state that in 2012 the pound will still be devaluating against the euro? Do you think that the present Euro/dolar, Euro/pound trading level is sustained in the long term without ruining the european corporate exportations? More: the return of liquidity to the Eurozone and the restoration of the housing market in Europe will require even further devaluations of the ECB interest rates (which are still high). The Euro will not hold for much longer on these high historic levels. Some months from now, the Euro will drop against the dolar and against the pound. (present interest rates: Eurozone 2,5%; England 2,0%; U.S. 0,25%). The current pound devaluation only reflects a prompt action by the Bank of England facing the current crisis (and it will lower even more its interest rates, lowering a bit further the pound/euro relation before of the euro fall) by comparison with an ECB that is paralized from taking a clear and direct action by the contradictory wishes of diferent blocs among the eurozone members.

    4-2012? Because of the Olympics? That’s almost as naive as stating that China would be more free because of the 2008 Olympics…Who believed in that?

    5-Well, I won’t elaborate much about the Rothschilds, the FED, the Bank of England and some libertarian conspiracy theories…You should do your own “crazy” research! 🙂

    Best wishes,
    NC

  2. 2 argosmedia December 29, 2008 at 7:00 am

    It’s true that the pound is deeply rooted in British identity as a country, as is driving on the left side of the road and using the imperial system. That’s why many people thought it would be next to impossible to see Britain ever giving up its currency in favor of the Euro, as Germany did by ditching the almighty Deutsche Mark.

    However, the British reluctance in joining the Euro back in 1999 was not only based on this symbolic dimension, but also on very pragmatic reasons. Two assumptions informed the British currency policy: one, that the dollar would continue to be the undisputed currency of reference for the foreseeable future; two, that the Euro would never match the purchasing power of the pound. As the Brits saw it back then, the Euro was akin to Monopoly money, good for the continentals to play with, but rather useless anywhere else.

    Things turned out to be quite different from what they expected. Much to their surprise, not only did the Euro managed to establish itself on the international markets, disputing the leading role that was considered to “naturally” belong to the dollar, it now is virtually on a par with the pound on currency markets. In fact, when you add commissions and fees, British consumers are actually getting less than a euro per pound when they purchase currency at airports and traveling agencies.

    This came as a tremendous shock for the Euro-skeptic crowd that nodded approvingly when reading the Daily Mail rants about the preposterousness of Britain ever joining the Euro. Naturally, what seemed utterly absurd when one pound bought almost two euros seems rather less ludicrous when it buys one euro and a half, and quite possible when it starts buying less than a euro.

    Beyond the question of the current ECB and Bank of England reference rates (which only partly explains the sharp devaluation of the pound to the euro), my view is that the current situation will highlight for British consumers the bread and butter advantages of having a currency supported by an economy of 450 million people. Confronted with the loss of purchasing power, will they be so strenuous in their defense of the pound? You can argue that they will stubbornly persist, but I really doubt it. The crisis is just starting to bite, and the UK’s economy, being so reliant on the financial sector, will be one of the hardest hit.

    That’s why I argue that 2012 is the probable date for an announcement that the UK will join the Euro. Several factors point to this date:

    It is unthinkable that the UK will loose the pound without trying to extract some sort of “compensation” from its European partners. The right time for this kind of wrangling is, of course, in the context of the overall discussion of the EU’s budget. The next budget kicks in in 2013, so 2012 is the deadline to close all the deals.

    A four year hiatus will give time for the government to start working the public opinion. Everybody knows that Gordon Brown isn’t exactly the Euro’s biggest fan, and it is highly unlikely that he will jeopardize his chances of reelection by raising a subject that is still deeply unpopular in Britain. So the bulk of the work will be done when the next government is in place, be it Labor or (more likely) Conservative. With general elections expected to take place in mid-2009, that leaves a full year for the new cabinet to settle in before it starts actively working on the subject.

    In the meantime, chances are that other countries that have so far shunned the Euro will embrace the common currency. Sweden, and especially Denmark, are on track for joining the Eurozone, with the decision there being much less traumatic than in the UK. Even Iceland, despite not being a EU member, is now seeking the protection of the Euro, after the country was left bankrupt by the international crisis.

    Since the government will almost be obliged to hold a referendum for such a momentous decision (Guy Fawkes movements would be sure to erupt otherwise), what better date to do it than 2012, when the collective subconscient will be filled with ideas more conducive to a “yes” vote?

  3. 3 NC December 29, 2008 at 11:43 pm

    Deregulation fear, by itself, would destroy your theory with the glimpse of an eye. Everyone will have “control freak” insticts for the several years to come…
    (“Ok, let’s give our coin’s control away”. It won’t happen, at least in Britain…)

    Can you see the Tories backing this euro plan?

    Pay attention: the pound devaluation makes the british people to lose purchasing power ABROAD and not at home (for that to happen, inflation should rise in Britain and that’s not the case).
    On one hand, the pound devaluation affects negatively the British tourist industry, but it will affect positively all the corporations that depend on exportations.

    As you’ll see in the few years to come, when Britain will re-emerge from the crisis, the Eurozone will still be in the middle of it. (please, don’t make me quote the “oasis theory” as an ironic metaphor for my thinking).

    The euro will drop much in the years to come.
    You may bet it.

  4. 4 argosmedia December 30, 2008 at 12:43 am

    My friend

    I truly admire your unshakable believe in the strength of the British economy. I just fail to see the reasons to support it, other than faith itself. Let’s review the data for a moment:

    – the UK had an annual inflation rate of 4.5 in October (as opposed to the EU’s 3.7%)

    – the current account deficit was up to £7.7 billion, with falling foreign direct investment in the UK partly to blame for the upward trend

    – house prices dropped 8.7% in 2008

    – the pound dropped 17% against the Euro in 2008

    – 600 000 jobs are expected to be lost during 2009

    – the retail sector is in havoc, facing such a sharp decline in sales that makes this the worst Christmas in 30 years

    So when you see Britain reemerging from the crisis, with the pound stronger than ever, while the Eurozone gets stuck in it with a devaluating Euro, you’re basing this view exactly on… what?

  5. 5 NC December 30, 2008 at 2:15 am

    …on the reality that it will be easier for them to rule their economy with their own economic and finantial sovereign instruments than the Eurozone to rule its economy with its monstruous pseudo-salomonic policies (trying to please Greeks and Trojans).
    Or puting it inside framework: how could the British solve their serious present problems if they were forbiden to exercise all of their traditional finantial instruments? (you know, it wasn’t the pound fluctuations that created this crisis, but the pound still gives them some-little-space to breath…just imagine how they would be hands tied if they were stuck inside the eurozone, without any freedom to act through the control of their own reference rates?)

    We’ll see how the Eurozone will try, for instance, to recover the housing market in Spain while trying to calm down possible inflationary tendencies in the eastern bloc. Should they rise reference rates or should they lower them?

    I’m not too optimistic about the british economy.
    However, it seems to me that you are in a party about the euro.

    The Eurozone instruments proved to work well in a positive economic scenario.
    Will see how how they’ll turn out in crisis mode.


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