Finding a level to enter the euro

Could UK industry survive entering the euro at a high rate?

Many businessmen and economists argue that the UK should not join the single currency until the pound has fallen much further against the euro.

This would help to increase the competitiveness of UK industry, they say.

"In the present circumstances, DM2.90 [to the pound] appears to be the maximum acceptable level for UK business," according to the Confederation of British Industry (CBI).

"The ideal rate would be somewhat lower."

On Wednesday, however, Nick Reilly, managing director of Vauxhall Motors, said that British businesses should be able to cope with entering the euro at a rate as high as DM3.10 to the pound.

The pound is currently trading at around DM3.17.

Seeking an ideal

Speaking at a CBI conference, Mr Reilly said talks with other firms had led him to believe industry could cope with an entry level of between DM2.75-DM3.10 to the pound.

Mr Reilly, who is also the chairman of the CBI's economic affairs committee, stressed that his views did not reflect an official CBI position.

If the UK was to enter the euro, the exchange rate level at which the pound goes in would be a key factor.

Nick Reilly: The UK could cope with a high euro entry rate

Were the pound valued too highly, it could make British exports uncompetitive.

But if it was too low, this would increase the price of imports which could in turn push up inflation.

The CBI says it is very difficult to suggest a single "correct" rate as much will depend on the economic position at the time of any possible entry.

More productive

The UK's Engineering Employers' Federation (EEF) also believes that business could manage a level of DM2.90 to the pound.

"Companies are more productive than they used to be and can therefore live with a far higher rate than in the past," says Mark Swift of the EEF.

But he says a rate of DM3.10 would far too high, preferring an ideal rate of between DM2.85 and DM2.90.

The City agrees that a rate above DM3 could be too high.

"Most people think south of DM3 is required for a comfortable life," says Geoffrey Dicks, chief UK economist at RBS Financial Markets.

Stability the key?

The steel maker Corus, however, wants to see the pound entering the euro at a much lower rate.

Steel making firm Corus says stability is vital

It favours a range of between DM2.50 and DM2.60.

But the company says its main concern is to avoid currency fluctuations.

"Stability is more important to us than joining the euro per se," says Mike Hitchcock, a Corus spokesman.

Mr Reilly's comments also failed to gain support from rival car maker Ford.

A spokesman for Ford said the company was planning on the UK entering the euro sometime between 2004 and 2006, and is hoping for a rate between DM2.50 and DM2.70.