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Tuesday, 13 February, 2001, 09:36 GMT
The UK's road to the euro

UK Prime Minister Tony Blair has promised that the government will decide on whether to call a referendum on euro membership within two years after the next general election - should Labour win the day. BBC News Online explains the timetable should UK voters decide to ditch the pound and adopt the single currency.

Some UK companies are already using the euro for their everyday accounting - either because they do a lot of business with the eurozone, or because they supply large customers in the eurozone that refuse to do business in sterling.

But for the majority of people in Britain, the euro is something that happens on the wrong side of the Channel... until the day the UK government decides that it believes the conditions are right for joining.

Decision day

The government decides
"Be prepared" is the euro motto of the Labour government. Downing Street launched a "euro preparations unit" as long ago as December 1997. Since then, government departments have made assessments how a changeover to the euro would work, and how costly it would be.

To qualify for euro membership, the UK has to meet various EU conditions on "economic convergence".

Its economy must move in a similar direction as that of the eurozone, government budget deficits must be low, and sterling should move in sync with the euro.

The government has set five additional tests:

  • Will joining the eurozone improve the long-term climate for investment in the UK?
  • How would the single currency affect the country's financial services?
  • Is the UK's business cycle "compatible" with that of the eurozone, and could UK industry "live comfortably with euro interest rates on a permanent basis"?
  • Is the eurozone system flexible enough to deal with economic problems?
  • Will the euro promote higher growth, stability and a lasting increase in UK jobs?
All these criteria, however, are sufficiently vague to argue that the UK is already meeting all conditions - or not meeting them at all.

The ultimate decision will be political, though, and is likely to depend on the government's parliamentary majority, the public mood and the euro's overall performance.

Four months later

UK referendum
Once the government has decided to recommend joining the single currency, parliament has to agree and put in place the legislation necessary for holding a referendum. This will set the question and a polling date.

The national changeover plan envisages that a referendum should be held about four months after the government announced its decision on the euro.

Currently, opinion polls suggest that about three-quarters of UK voters are against adopting the single currency, although a huge majority believes that euro membership is "inevitable".

Should UK voters say "yes" to the euro, then Britain's 12 eurozone partners will decide whether to accept the country into their ranks.

The European Commission and the European Central Bank will assess the UK's "economic convergence" with the eurozone.

Then the EU's council of ministers will take the decision whether the UK is fit to join, and set a date for membership.

The British parliament, meanwhile, will enact the necessary legislation to change the statute of the Bank of England, set changeover rules and make the euro legal tender in the UK.

Some time later...

UK joins

There is no fixed timetable for joining monetary union, but the government believes that it will take between 24 and 30 months from the date of a referendum until euro notes and coins are formally introduced in the UK economy.

The official date for becoming a member of the eurozone lies somewhere in-between, and is set by the government together with the EU's council of ministers.

Once the UK is a member, the pounds exchange rate to the euro will be fixed, and the pound will become a denomination of the euro - just like the penny to the pound.

Exchanging pounds for euros will not carry an exchange rate risk anymore.

The euro will be legal tender in the UK, but nobody will be forced to use the euro. However, if two people or businesses want to use the euro, they are allowed to do so.

Most electronic transfers systems between banks and all financial markets are likely to use euros exclusively from the first day of membership.

Notes and coins

Euro cash
The next step will be the introduction of euro bank notes and coins.

This will be much easier than on the continent, where 12 countries switched the currency at the same time.

The UK government will be able to draw on their experiences to avoid mistakes.

Firms and especially retailers will gear up for the euro, adjust their software and hardware for the new currency, and train their staff.

The government will launch a large-scale information campaign, similar to the one during decimalisation of the pound.

Shops will display "dual pricing", in sterling and in euros, to help their customers get accustomed to the new currency and its value in the shops.

On an agreed date, the Bank of England will launch euro notes and coins in the UK, and euro cash will be legal tender across the country.

Six months after the cash launch

Pound disappears
Eurozone rules allow the UK to have pounds and euro in circulation at the same time for up to six months.

Retailers, however, would want a much faster changeover.

They would want to avoid the hassle of having to count two kinds of currency, or go through the tricky task of accepting pounds and giving change in euros.

Many shop assistants and shop owners are likely to be tested to their limits when customers try to pay with a mixture of pound and euro - and then calculate the change in euros only.

In most eurozone countries, the changeover period from national cash to euro cash has been set as two months - making euros and euro cents the only legal tender from March 2002.

In the UK, the pound would cease to exist any time between two-and-a-half and three-and-a-quarter years after the government's decision to recommend joining monetary union.

That, however, would be pretty close to the next general election, and could be a gamble no government will make lightly.

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