Bank governor says joining the euro poses 'special risk'

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Indy Politics

Sir Edward George, the Governor of the Bank of England, has issued one of his strongest warnings yet that membership of the euro would pose a "special risk" to the British economy.

In an interview with a German television station yesterday, Sir Edward criticised what he called the "one-size-fits-all" approach of the single currency, which is expected to go live on 1 January.

Speaking to Deutsche Welle television, the governor said that joining the euro would ultimately be a political decision, despite the Government's five economic preconditions for any referendum.

Sir Edward did concede that one potential advantage of European monetary union would be the nominal stability of the exchange rate with Britain's trading partners and access to eurozone capital markets.

However, he added: "Certainly I see the one-size-fits-all monetary policy as a disadvantage and a special risk. The same monetary policy is not optimal for every country at the same time."

Sir Edward said that it was not impossible that Britons could vote to join the euro in a referendum, "although at the moment, looking at the polls, that would be very difficult".

The Governor's remarks are in tune with his earlier comments on the single currency, which have been increasingly sceptical through the year.

The timing of his remarks, days before the euro's launch, will concern pro-euro ministers, but they will please Gordon Brown, the Chancellor, who has emphasised the possible downsides of British membership of the single currency.

Tony Blair is in principle in favour of the euro, having concluded that the constitutional objections to it have been "resolved", and he has committed the Government to making an assessment of its five tests by June 2003. Although the Treasury will make the assessment, the whole Cabinet will make the final decision on a referendum. The poll will be held after parliamentary approval.

The Chancellor underlined the disadvantages of membership in a speech to the Confederation of British Industry earlier this month, but Mr Blair appeared to contradict him the following day with a more positive analysis. The Prime Minister was most enthusiastic about the euro in a speech he gave in Birmingham recently.