Bank urges Blair to set rate early for euro entry

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The Independent Online
THE BANK of England yesterday urged the Government to reveal the rate at which sterling will join the European single currency "some time" before it signs up to the euro.

The Bank said early announcements of all policy decisions would "greatly assist" the financial markets' ability to cope with the UK's entry into the currency. The plea came as the euro hit new lifetime lows against the dollar, narrowly avoiding breaching $1.03 before staging a weak recovery on hopes of peace in Yugoslavia.

In its first ever report on how the City will cope, the Bank said it would need at least a year to prepare the sterling wholesale markets for the switch to the euro. "Early announcement of all key policy decisions would greatly assist preparations and planning," it said in its report, Practical Issues Arising from the Euro. "It would also help if the official conversion rate from sterling to euro could be agreed and announced some time before entry."

The Bank refused to specify the amount of warning it wanted ministers to give. The Treasury declined to comment but Gordon Brown, the Chancellor, has made it clear the Government is not pursuing an exchange rate target ahead of euro entry.

The Bank said entry would entail changing computer systems both within individual institutions and in the financial infrastructure. "But because of the number of systems requiring development, each competing for the same scarce resources, it would be prudent to allow more than 12 months to complete all the preparations."

There should be another 12-month period before sterling is finally abolished, it said.

In its National Changeover Plan, published in February, the Government allows up to 15 months between both the result of the referendum and joining the euro and between joining and abolishing the pound.

The Government is committed in principle to joining but has set a five- point test and the need for a referendum vote before taking the UK into the euro.

It is understood that the Bank may revise upwards its 12-month target after carrying out an investigation into the experience of the 11 countries that join in January. It found preparations had taken up to three years.

Meanwhile, hopes of an end to the war in Kosovo boosted the value of the euro on the financial markets. The currency gained almost a cent against the dollar to hit $1.39, after at one point plunging to within a whisker of breaking through the $1.03 barrier.

But the rally quickly fizzled out and traders said it would not be long before the euro was again threatening life-time lows. On the European markets it closed at $1.035.

Hans Tietmeyer, the Bundesbank president, warned against underestimating the fledgling currency. "The markets don't realise the potential of the euro. It is up to them if they want to lose money," he said after giving a speech at Oxford University.

Mr Tietmeyer denied the European Central Bank was neglecting the euro but said the fall was "not good news".

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