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Monday, 15 April, 2002, 06:03 GMT 07:03 UK
Bank chief explains UK euro delay
Sir Edward George, governor of the Bank of England
Sir Edward: Do "one-size-fits-all" interest rates work?
Sir Edward George, the governor of the Bank of England, has placed the loss of control over interest rates as a major reason behind the UK's reluctance to adopt the euro.

Britons were also sceptical over the level of regulation in other parts of the European Union, Sir Edward told a seminar in Spain.

But he called Europe's single currency a "fantastic success" and praised as an "absolute triumph" the introduction of notes and coins.

His comments came as union leader Roger Lyons prepared to calls for reforms to the UK's own interest rate regime, to ensure more regional input in rate decisions.

Key dilemma

Sir Edward, explaining why the UK was still outside the euro, said Britons had yet to be convinced that the benefits of adopting the currency were sufficient to warrant abandoning control over interest rates.

If Britain were to adopt the euro, the UK would cede control over interest rates to the European Central Bank, which sets a common rate for all eurozone nations.

"The real question for the UK is whether the one-size-fits-all monetary policy suits all of the participating countries," Sir Edward said.

He questioned whether the eurozone had sufficient balancing economic factors for the single interest rate policy to succeed in the long term.

"If it were to produce tensions, then because there's less fiscal transferability across the euro zone than at the national level, because there's less labour mobility at this stage of the evolution of Europe, then those problems could be serious."

Economists largely credit the commonality of tax regimes, and the willingness of workers to move state, for the success of the dollar in the US.

'Too rigid'

Sir Edward also warned of Britons' concerns at the level of intervention in other EU countries into some economic factors, such as labour markets.

"The need for... improvements to improve flexibility of goods, labour and capital markets within Europe is the area where I think there's a great deal more work to be done," Sir Edward said.

Such restrictions were holding back economic growth, and partly explained the weakness of the euro against the US dollar, he added.

The US's reluctance to intervene had led to a perception that the country was in a better position to achieve productivity gains.

Sir Edward said the ability to achieve productivity improvements was "terribly important in terms of the exchange rate relationship".

Union demand

The Bank of England's own interest rate regime will come under fire later on Monday, when Roger Lyons, general secretary of Amicus, will urge reforms to the rate-setting monetary policy committee (MPC).

Committee members are "out of touch" with manufacturing, Mr Lyons will say, urging the inclusion of regional experts on the MPC.

"Changing the remit of the MPC will relieve some of the pressure on the profit margins of UK exporters and save thousands of jobs in Scotland and the north of England," Mr Lyons will tell the Scottish TUC congress in Perth.

See also:

19 Dec 01 | Wales
Bargain hunters await the euro
19 Dec 01 | UK Politics
The UK's euro battle: your views
19 Dec 01 | UK Politics
The UK's euro battle
19 Sep 01 | Business
Bank considered UK rate rise
21 Dec 01 | Business
Sir Edward sparks unjust furore
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