The UK's euro dilemma

The UK is happy to trade euros but not to sign up

By business reporter Jonty Bloom

The euro has 11 members but there is also a bit of a queue to join.

Greece, has recently signed up for membership and Denmark is holding a referendum on whether or not to join in September. If Denmark does join, it seems likely that the pressure for Sweden to join will increase.

Therefore it is possible that within a couple of years the UK will be the only country in the EU but not the euro.

So why are some countries so keen to join when the UK isn't?

Denmark

Denmark has a very euro-sceptic population but trade unions, business organisations and main political parties are all campaigning to join.

Denmark is already a member of the ERM, so its currency cannot move more than 2.25% either way against the single currency.

You might think that for a euro sceptic population that is quite close enough.

But for Klaus Norskov of Dansk Industri, the Danish equivalent of the CBI, there are several reasons for joining.

The Danish kroner may be linked to the euro but there are still foreign exchange costs every time Danish businesses buy or sell in the rest of euroland.

There is also the strategic argument. Denmark is so closely tied to the rest of euroland that it has rather limited freedom of action.

It usually finds that it has to raise or cut interest rates at the same time as the European Central Bank.

So joining the euro would at least give it a vote on when or whether to alter rates.

Finally, the euro is not necessarily seen as a failure in Denmark.

True it has fallen steadily, but as Mr Norskov points out all currencies rise and fall all the time and this is not necessarily the best measure of whether they are a success or failure.

British fears

In Britain, industry complains almost daily that the high value of the pound is crippling its exports, profits and employment prospects.

At the same time however, it also holds up the weakness of the euro as a principle reason for not joining the single currency.

This is rather a schizophrenic attitude and I think the key to it is the trauma of its short-lived and disastrous membership of the ERM.

The pound joined in 1990 and was evicted by the markets in 1992.

The experience was so bad that the present government has said that even if sterling were to join the euro, it wouldn't join the ERM beforehand; even though legally it shouldn't be allowed to do so.

It seems that eight years on, the trauma of the ERM still colours British perceptions to a remarkable extent.