Business may force early EMU entry

Click to follow
The Independent Online
The Confederation of British Industry yesterday predicted that de facto adoption of the euro by many large businesses would increase the pressure for early UK entry into a European single currency after the 1999 launch date.

Speaking in the run-up to the CBI's annual conference next week, which is certain to be dominated by the twin themes of Europe and monetary union, Adair Turner, director general, predicted that many companies wouldbill and invoice in euros. He also forecast that significant numbers of firms would get suppliers to bill in euros and arrange euro borrowings to hedge their exchange rate exposure to the new currency.

The Government has backed the principle of EMU but has effectively ruled out Britain joining before 2002 because economic conditions will not be appropriate. However, Mr Turner said: "There will be a de facto element of adoption. EMU will put in place developments which increase business support for early entry.

"The euro will put British companies at a degree of competitive disadvantage and over time that will generate increasing demand for entry, not just from big multi-nationals but medium-sized exporters becoming increasingly vocal about the disadvantages they are exposed to."

Several large companies, including Marks and Spencer, have decided to accept the euro at their tills when notes and coins start circulating in 2002 and others such as BP are considering switching their accounts to the euro.

Mr Turner also took a side swipe at the Tory leadership under William Hague, which has ruled out participation in a single currency for 10 years. Criticising the Conservatives' stance, he said: "I would like them to say they have an open mind on issues to do with Europe, particularly EMU, that they are going to listen to business opinion on that issue and that they are going to play the role of a constructive and pragmatic opposition."

He refused to be drawn, however, on whether the Tory split on EMU, with heavyweights such as Kenneth Clarke and Michael Heseltine coming out for early entry, presaged a schism in the party to rank alongside the realignment of politics on the left in the early 1980s with the creation of the SDP. "That is interesting speculation for others to go through," he said.

The Chancellor of the Exchequer, Gordon Brown, will address the CBI conference in Birmingham on Monday and will be followed by Mr Hague. The Prime Minister, Tony Blair, will bring the proceedings to a climax with a live video link on Tuesday. He had been scheduled to speak on education but has changed his theme to Europe to reinforce the message that Labour has inherited the mantle of the party for business.

The conference will also see the launch of a debate about labour market flexibility across Europe, in itself one of the key factors on which the success of monetary union will turn. The CBI is warning that without greater flexibility in labour markets, the benefits of EMU will be diluted.

There have been moves towards freeing up labour markets in areas such as flexible skills. But there has been much less movement in the contentious areas of wage flexibility and demanning. In France, Italy and even the Netherlands, there is only very limited scope for firms to adjust employee levels to suit competitive conditions without incurring heavy costs and in some member states it remains illegal or impossible to achieve without lengthy consultation periods.

Mr Turner said that although conditions on the Continent were often compared unfavourably to the open labour markets of Britain and the US, the situation was not as bad as imagined. Germany had introduced a degree of decentralised wage bargaining, the Dutch allowed greater flexibility in working hours and in Italy there had been a degree of loosening with government support for the abolition of earnings indexation.

However, the CBI cautioned that it was important not to adopt a "one size fits all" approach to labour flexibility across all countries.

Comments