Chemical industry calls to delay start of EMU

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The Independent Online
Leaders of Britain's chemicals industry yesterday called for a delay in the launch of a single European currency in 1999 but said that when economic and monetary union did proceed the UK should be in the first wave.

The call from the Chemical Industries Association came as its annual survey of investment intentions showed that up to a quarter of chemical companies would cut back on spending if Britain stayed outside EMU.

Elliot Finer, director-general of the CIA, said the chemical industry supported a single currency, believing it would save around pounds 200m a year in transaction costs, aid completion of the single market and improve Europe's competitiveness.

But he said: "We have always believed that it is more important to get the transition right than to adhere to a predetermined timetable. Unfortunately it looks as if there has not yet been sufficient movement in the economies of prospective EMU members to allow a single currency to be a success. We therefore believe that it would be in Europe's best interests to delay the start of the project until there has been the real convergence and increased flexibility a single currency will require."

Mr Finer conceded that a delay in the timetable could damage the political momentum behind EMU. But he argued it was more important to achieve real convergence in inflation and employment rates and output per head than for the EMU timetable to be driven by "political machismo".

That, he said, would do more damage to Europe's competitiveness because if countries went in when their economies were not ready there would be huge pressure for state aid handouts to compensate.

However, he said that when EMU did start, it was vital to the long-term health of the UK chemical industry that Britain was a member. If it was outside the core group of participating states, Britain would lose out on investment.

Industries within the core group would also find it less attractive to trade with those who stayed outside EMU.

The survey of investment intentions shows that spending is likely to remain subdued for the fifth year running. The CIA's members are forecasting only a 5 per cent rise in investment in real terms this year to pounds 2.3bn. In 1996 investment actually fell marginally in real terms to pounds 2.15bn despite predictions at the start of the year that it would increase by 14 per cent. Spending last year was 23 per cent below its peak in the late 1980s.

The subdued outlook for investment reflected worries about interest rates increasing after the election and the general sluggishness of demand in Europe, notably Germany, combined with doubts about the launch of EMU.

The survey also highlighted concerns about skills shortages, with companies complaining about a lack of good quality graduates. Chemical companies were also concerned that electricity prices and costs of complying with environmental legislation would hold back investment.