Leading Article: The euro is here, so let's start adjusting our economy to it

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The Independent Culture
THE BANK of England's Monetary Committee is meeting today for the first time since the launch of the euro. This shouldn't necessarily influence the immediate decision to lower interest rates again. The committee may well decide to leave them where they are, at 6.25 per cent. But the coming of the euro is of immense importance to the Bank's deliberations for the future. In business, as in politics, complacency would be the very worst stance to adopt over a development that will have a profound influence on our currency, and interests rates, whether or not we join.

Within days of its launch, the euro has already been adopted by central banks and international investors as a major reserve currency. The Bank of England has even supplanted the Treasury in issuing bills of exchange denominated in the new euro.

In the short run this has had its benefits. As the value of the euro has risen on the foreign exchanges, the dollar has fallen, and with it sterling. The fears of an overvalued British currency destroying the country's export industry, so prevalent only a few months ago, are fast receding. The value of the pound is still not as low as industry, or even the Bank of England, would like. But it is not nearly as threatening as it was.

At the same time, on the latest figures, Britain appears to be moving towards recession - if recession indeed it should be - in a remarkably quiet and composed fashion. The indications are that demand even for services is beginning to fall, and with it the pressure on wages and prices. But the economy is not going into reverse, and may not do so for some time to come. Under these conditions the temptation for the wise men and one woman of the Bank's Monetary Committee will be to keep a holding position and wait to see what does emerge in the economy over the next few months.

That may be sensible in the short term. But it won't do for longer. The new reality for Britain is a currency that stands to rival the dollar in economic strength and international importance. Sterling will be left more and more a small sailing boat caught between two supertankers, pulled up and down with the dollar but equally liable to the swell from neighbouring Europe. In this situation the Bank of England will have to co-ordinate its actions with Europe. Already it is thinking of changing the UK definitions of inflation to fit the European criteria. When it does it will soon become apparent how high British rates are comparatively - not just by fractions but by a full per cent.

If that is the case, why not start now? The risks of inflation are minimal, the dangers of contraction are real. And why not start talking openly about what the euro does mean to us? Like it or not, we are part of a global village in which a new superstore has opened up on the high street.

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