The Wall Street Journal

April 29, 2002

THE EURO: CASH IN HAND

Adopting Euro Could Hurt the U.K.
If Pound Is Overvalued, Report Says

By MARC CHAMPION
Staff Reporter of THE WALL STREET JOURNAL

EURO DEBATE
 Newspaper Claims Britain's Brown Wants Weaker Pound Before Euro1
04/15/02
 
 Euro's British Foes Hope for Boost From Non-Reprimand of Germany2
02/13/02
 
 Is the Euro's Success Leaving Britain Behind?3
01/16/02
 


LONDON -- Britain would suffer a substantial short-term loss of economic output and jobs if it were to join the euro with an overvalued pound, according to research by the independent think tank Oxford Economic Forecasting.

The report, published Monday, comes at a time Britain's government is making an assessment of what the impact of joining the euro would be on the United Kingdom economy. The question of what would be an acceptable exchange rate at which to enter the common currency has become a subject of fierce political debate.

Assuming the pound was locked into the euro at 10% above its equilibrium rate, the think tank predicted Britain would sacrifice 4.2% of gross domestic product, 5.7% of industrial production and about 300,000 jobs after three years of membership. The cumulative impact would then unwind, returning to zero after eight years.

The think tank was commissioned by the "No" campaign, which lobbies to keep Britain out of the euro-zone, to conduct its research.

The five economic tests on which the U.K. Treasury will assess Britain's suitability for euro membership don't mention the exchange rate, but the government has acknowledged the value of the pound will be a factor in its calculations. If the Treasury decides joining the euro would benefit Britain's economy, then the government has promised to hold a referendum. At that point, Britain would have to meet the Maastricht criteria for entry and to negotiate an exchange rate for the pound's entry.

Write to Marc Champion at marc.champion@wsj.com4

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Updated April 29, 2002





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