Jim Marshall MP addresses the Midlandstextile and apparel Industry
In a statement made to the House of Commonsback in January, the Chief Secretary to the Treasury, Mr Alan Milburn, said:"Overnight, from 1 January, the euro has become the world’s second most importantcurrency. It is now a reality, and not only for the 11 nations that joined the first wave.It is a reality also for the city of London and for the tens of thousands of businesses inour country that trade with Europe day in and day out. Its significance will increase, notdiminish.
"Almost half our trade is with theeuro zone, and that trade is increasing. Many companies are already pledged to use theeuro regardless of whether Britain is in or out. It is in Britain’s economic interest toinfluence the euro’s development and to make it a success whether we are members ornot".
To explain the Government’s view on how theeuro will effect businesses within the UK, Jim Marshall MP addressed textile and apparelindustry representatives in a recent meeting run jointly between the Textile InstituteMidlands Section and the Leicester Textile Society. Stressing that although there may havebeen hidden political agendas within some countries, he made it clear that the keybenefits of the single European currency are financial, not political. Indeed, of theeleven member states who elected to join the single currency and met the joining criteria,many tough internal economic and political changes were necessary, including a reductionin their public sector deficit, borrowing and inflation.
The single market has been in existence now for over a decade and many visibleand invisible barriers to trade have been removed. However, as Marshall explained, fulleconomic benefit is only achievable when there is an increasingly open and transparentmarket across the whole EU – which the euro will provide – enabling greater and fairercompetition between companies and nations.
Strict adherence to the entry criteriashould ensure the euro is a ‘hard’ currency providing low inflation, price stability,lower borrowing costs and thus greater business investment and wider job opportunities,immediate price comparison between countries with existing price differentials convergingdownwards once prices are all quoted in the same currency, increased cross border trading,partnerships and take-overs, all leading to faster economic growth with estimatessuggesting increases of 0.5 per cent for some years and 0.25 per cent thereafter.
Many of these advantages will be pertinentto companies whether or not they are trading directly within the EU, and are the basis forthe Government’s optimism to join the single currency in the shorter, rather than long,term.
Consider, for example, the effect onindustry of unstable Far Eastern currencies and the high pound on UK exporting. The singlecurrency eliminates exchange rate fluctuations and risks, thereby eliminating theseinfluences on location and sourcing decisions; and significant rationalisation of industrywill result in the long term benefit of the European economy.
Trading with Europe currently amounts to0.3 per cent of Britain’s Gross Domestic Product (GDP) in exchange rate costs. Although onthe surface this does not sound much, it amounts to £900 million year on year, a costaffecting mainly small to medium sized businesses. Although there is a cost to business inpreparing for a change to the euro amounting to approximately £1,000 million across theboard, this is a one off cost, which means that the pay-back for change within Britainwill amount to approximately one year – in industry terms, quite low.
There are of course, risks, and these can be divided into two main categories.Demand side risks concerning the conduct of euro monetary and fiscal policy within thesingle currency zone, and supply side risks arising from inflexibility of product andlabour markets.
Marshall pointed out that it is essentialto continue to permit governments to use fiscal deficits as a counter cyclical measure,but high deficits must be avoided otherwise there is potential for real conflict betweenthe finance ministers of member countries and the European Central Bank.
As money revolves around eleven countries,rather than nationally, there is an increased risk of error, particularly at the earlystages, in establishing the national and European economic indicators upon which manydecisions are based. Although the EU and the single currency open up the labour markets ofthe member countries, in practice labour is very inflexible. So to remain competitive,training of new skills to the workforce is imperative if they are to benefit from the newjob opportunities.
There are eleven countries in the singlecurrency zone. Greece wishes to join as soon as it has met the laid down economic joiningcriteria, and Denmark has indicated it will hold a party conference in eighteen monthstime to gain a ‘Yes’ decision. Within the next twenty five years it is likely that afurther twenty five countries will have joined the EU.
Early fundamental decisions will berequired to ensure the euro becomes and remains a hard stable currency and thus, for theUK to have any substantial influence, it is likely that Government will opt to join theeuro sooner rather than later. It is expected that all three remaining EU members will beoperating the euro by 2002, the year the new cash currency is introduced.
FOR MORE INFORMATION AND PRACTICALHELP
To help businesses learn more about and understand the single currency, adedicated Government euro telephone line has been set up on 0845 601 01 99. A set oftwenty useful euro fact sheets is available from this number, or from the Treasury eurowebsite at
Business Links, Chambers of Commerce andbanks can also be valuable sources of information, as can Euro Info Centres in the UK:0800 78 36 553.