Currency pressure 'grows on UK'

The political pressures on Britain to take part in European monetary union have risen markedly in recent months, Eddie George, the Governor of the Bank of England, told MPs yesterday. "The financial markets have been pushed to one side," Mr George said in evidence before the Treasury Select Committee, noting the apparent determination of a number of key governments to meet the 1999 deadline for a common currency.

The Governor emphasised the political dynamic of the decision-making process because, in his view, the chances of key countries achieving the convergence criteria in time had become "more doubtful than a year ago".

Mr George was re-appearing before the select committee in part to correct what he regarded as a Euro-sceptical mis-interpretation of his EMU evidence on 8 May.

Instead, Mr George placed himself firmly in the pragmatist camp, lining up alongside Kenneth Clarke, the Chancellor.

He said he did not take an adverse view of European monetary union, but had become more doubtful about the ability of countries to fulfil, on time, criteria on inflation, public spending and national debt.

"I was disappointed with the way in which it [my previous evidence] was reported. I am not commenting in an adverse way on the merits of the project," he told the MPs.

"I believe that it may help to achieve the kind of stability which I think is fundamentally the most important issue here. And I think if that stability is achieved on a sustainable basis, encapsulating that in a single currency then becomes a plausible, sensible approach.

"All I have said in talking about having become more doubtful is I am more doubtful as to whether the convergence criteria can be achieved according to the Maastricht timetable," he added.

"I am more doubtful now than I was a year ago [because of] the softening of economic activity on the continent of Europe. I think that is an extremely unhelpful environment for actually achieving the convergence criteria to the current timetable."

He also said that he believed that if the UK remained outside EMU, such a move would not damage the financial activities of the City of London. The UK would not be treated like a pariah if it chose not to join a common currency, he said.

The Governor lent his weight to the argument in favour of making the Bank of England independent, whether or not Britain decided to join EMU, because of the advantages it would bring in boosting anti-inflation credentials.

The Governor said that what really mattered for Britain was the ability consistently to deliver a stable economic environment "in any circumstance in or out [of EMU] with or without an independent central bank". But he would welcome a decision to give the Bank a mandate for delivering price stability.