Europe is banking on Brown

Click to follow
The Independent Online
The Government's decision to surrender political control over the Bank of England was welcomed in Brussels yesterday as a move to line Britain up for the single currency. Although most analysts still believe it is unlikely Britain could be ready to join in the first wave, should it so choose, it is now, at least, becoming possible.

Many analysts in Europe think the move to give the Bank freedom was as much about easing the path to a single currency as it was about control of the domestic economy, but that it was portrayed in terms of the latter to ease its consumption. Alexandre Lamfalussy, president of the European Monetary Institute, forerunner of the European central bank, called it "music to my ears." He told the European Parliament the reforms constituted "a major step towards meeting the independent criteria for monetary union."

News yesterday that Sir David Simon, chairman of BP and a strong single- currency supporter, had been made minister for trade and competitiveness in Europe, added to speculation in Brussels about the new government's intentions towards the euro.

Announcing the reforms on Tuesday, Gordon Brown, the Chancellor, said they were desirable for domestic reasons, and were unrelated to the single currency. But that is not how it was viewed in other European finance ministries or in institutions preparing for the euro.

Mr Brown's fellow finance ministers will have a chance to grill him on the Government's real intentions on the single currency at a meeting in Brussels on Monday. If the Government hopes to join the first wave, on 1 January 1999, or soon after, it must move swiftly. Under the Maastricht Treaty Britain must "notify" its partners of its intention to join the first wave by the end of this year.

Perhaps the biggest single task Britain must perform to qualify is to transform the Bank of England into a fully independent central bank, one of the key Maastricht criteria.

Although Mr Brown's announcement on surrendering control of interest rates does not fully meet Maastricht's definition of independence, it is viewed in Brussels as a significant move.

Under the stewardship of Kenneth Clarke, the former chancellor, Britain had already met many economic-convergence criteria, an achievement which Mr Clarke used to present as necessary "in the British domestic political interest."

Last month the European Commission's economic estimates forecast Britain would meet the key budget deficit criteria for 1997 with every other country apart from Italy and Greece. Questions still remain about whether Britain would have to rejoin the exchange rate mechanism to qualify. Membership of the ERM is viewed by other member-states and the European Commission as another key criteria, although Britain disputes such an interpretation of the treaty.

Joining Blair, page 20

Comments