The Wall Street Journal

May 21, 2003

 U.K. Government Names Date for Decision on Euro Referendum1

For Britain, Euro Debate
Isn't All About Economics


BATTLE, England -- To hear Gordon Brown, the U.K.'s chancellor of the Exchequer tell it, whether Britain adopts the euro is simply a matter of economics.

Not if the people of this small town, built on the site where England was invaded and defeated by the French 1,000 years ago, have a say in it.

"In sacrificing our currency, we are sacrificing much more," Charles Moore, editor of the Daily Telegraph newspaper and a local resident, told a town hall meeting over the weekend. He was greeted with murmurs of approval. "We're deciding after many hundreds of years that somebody else is Caesar," he added, a reference to the Biblical advice of rendering unto Caesar what is Caesar's and unto God what is God's.

[Gordon Brown]

In three weeks, Mr. Brown is due to publish about 2,500 pages of economic analysis, including the results of five tests he devised in 1997 to decide when the economics would be right for Britain to adopt the euro. The tests range from whether the country's business cycle is in sync with that of the 12-nation euro zone to whether joining would create jobs and investment. The results of those tests will determine whether the government of Prime Minister Tony Blair will call a referendum to adopt the common currency.

No one expects that Mr. Brown will say the tests have been met, or that a vote will be called anytime soon. Government critics dismiss the entire exercise as a ploy by Mr. Brown to seize control of the euro decision and neutralize it until he thinks a referendum can be won. Mr. Brown himself seemed to hint in a May 13 speech that the time wasn't yet right. "It is only by showing that at all times we advance the national economic interest that I believe we can build the pro-European consensus that has eluded Britain for so long," he said.

But that hasn't stopped the U.K. from engaging in a fierce debate in the past few weeks among newspapers, politicians and citizens, like the 200 who attended the meeting here this past weekend. That debate stretches far beyond economics. Even though the French, Germans and other European nations have adopted the euro without losing their sense of nationhood, on this side of the English Channel the debate is about who rules Britain and what it means to be British. Not a single question asked here Saturday was related to Mr. Brown's tests. People worried instead about losing sovereignty, or being separated from the U.S.

[Thumbs Down]

"In some ways what you are saying is that we should leave the EU," warned Graham Bishop, a financial consultant and local resident who was arguing the case for joining the euro. "Hear, hear," the hall muttered. In a show of hands, about 75% expressed a desire not to join the euro, while about 25% were for it. Inflaming passions in the U.K. is the country's role in the world since it sided with the U.S. over its European allies in the recent Iraq war. Even euro-enthusiasts accept that it is a lousy time to persuade Britons to give up the pound.

"The problem is that to win a referendum on the euro, you now have to say we are better off with the Europeans than the Americans, and in current circumstances that's not a winner," said John Stevens, a co-founder of the Conservative Party's pro-Europe movement. He is now a member of the Liberal-Democrats, Britain's third party. Recent opinion polls show opposition to joining the euro hardening at around 2-to-1.

Mr. Bishop worries that Britain has to make up its mind soon on Europe and the euro or lose out. Without a decision, either way, he believes the U.K. will no longer be listened to as the European Union writes important new financial-market regulations that will affect U.K. businesses and expands to include 10 more countries, raising the EU's total population to about 500 million. While he acknowledges that were a euro referendum held tomorrow it would fail, he thinks that a full-on six-month campaign, led by the government, could win out.

So far, it isn't clear what the U.K. has lost by staying out of the euro, along with Sweden and Denmark.

A recent report by 11 economists from the Massachusetts Institute of Technology to the University of Toulouse in France estimated that trade among the euro-zone members increased by 30% since the zone was created in 1999. U.K. trade with euro-zone countries, by contrast, rose by 13%. Similarly, Britain's share of foreign direct investment made in Europe declined to 24% of the EU total in 2001, from 60% in 1998, while the euro-zone share rose to 70% from 40%.

Other economists, however, say these changes have little to do with the euro and that numerous prophecies of doom -- such as that Britain's financial industry would move to the continent if it didn't join the euro -- haven't materialized. They argue, too, that Britain's somewhat lighter regulatory and tax burden is more important to investors than the euro, and that these advantages would eventually be lost if Britain joined.

Even the business community is split. The relative poor performance of euro-zone countries, such as Germany in terms of growth and employment, appears for now to be supporting the anti-euro lobby. "What is it that we actually want to converge with [in Europe]?" asked Greg Barker, Battle's Conservative MP and Mr. Moore's debating partner this past weekend. "Is it the millions of unemployed in Germany?"

Britain's love-hate relationship with continental Europe began just a few hundred yards from Battle's town hall, where the Norman King William defeated the Anglo-Saxon King Harold in 1066. According to the conventional story of England's history, William's invasion launched the formation of the modern English nation and marked the last time that the country was conquered. Since then, Britain's island geography has saved it from the long history of insecurity, invasion and occupation that countries on the Continent have had to endure. That has made the EU seem less essential for Britons."The last time we had a foreigner marching down Battle High Street was a Norman 1,000 years ago," said Stephen Swift, a banker who commutes from Battle to London.

Much of the accepted story that Britain can trace back 1,000 years of independent and peaceful rule is mythical, historians say. But it presents a huge impediment to Mr. Blair, who is eager to join the euro and has repeatedly said that it is Britain's "destiny" to lead in Europe. And after siding with the U.S. over in Iraq, joining the common currency is probably the only gesture he could make to persuade other European leaders of his commitment to Europe.

One of the few people to speak from the floor on Europe's behalf on Saturday was Mr. Moore's 72-year-old father, Richard, a lifelong Liberal, the one significant British political party that advocates joining the euro immediately. "I agree with the French that for the good of the world, there needs to be a counterbalancing force to the United States," which otherwise risks falling victim to "complacency and hubris, as the British Empire did," the elder Mr. Moore said.

Write to Marc Champion at marc.champion@wsj.com2

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Updated May 21, 2003

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