The value of the pound is no longer a major obstacle to joining the euro, the Governor of the Bank of England said yesterday as sterling plunged through another key support level. Sir Edward George told MPs the exchange rate was "more acceptable" than it had been a year ago although the exact rate would be a "matter of judgement".
He told the Treasury select committee's inquiry into the euro that when the pound was worth about3.25 against the old German mark, the exchange rate was an "immediate obstacle to entry".
"We are now closer to DM2.90 and so that obstacle is certainly reduced in those terms," he said. "Whatever it was a year ago it's certainly more acceptable now."
Asked what he thought would be the appropriate rate at which to join, Sir Edward replied with a laugh: "Heaven knows, it is a real art and will come to a lot of different answers."
Britain in Europe, the pro-euro lobby group, said the Governor had confirmed that the pound was moving in the right direction.
"Eddie George's comments will be a deep disappointment to anti-Europeans who have long maintained that the over-valuation of sterling is a barrier to Britain joining the euro," its campaign director Simon Buckby said.
But the No Campaign said Sir Edward had highlighted the difficulty in deciding what was the appropriate exchange rate. "The important thing is to have a long period of exchange rate stability but, instead there has been substantial volatility since the euro was launched and this reflects the differing needs of our economy," its director George Eustice said.
The value of the pound against a basket of currencies fell below the key 100 level and to its lowest for more than four years yesterday. Against the euro it came within a whisker of breaking through the 69p level – equivalent to DM2.83.
Adam Cole, a senior currency strategist at Crédit Agricole Indosuez, said the pound could easily hit 70p. "It is a relatively short-term phenomenon but it won't go away in a hurry," he said.
He added that the pound had fallen because of a combination of fears over the implications of a war with Iraq and continued fallout from last month's interest rate cut.
But Mr Cole said assuming a short, sharp war restored global confidence and the Government ruled out a referendum on the euro in the current parliament, the pound would rally. "I think 65p is a realistic expectation," he said.
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