Tuesday, December 22, 1998 Published at 16:25 GMT
Weighing up Britain's euro odds
The channel - and the euro - separate the UK from the continent
The British government claims to be in favour of joining Europe's monetary union in principle, as long as signing up to the euro will benefit the UK economy. But is the UK missing out by not joining EMU now?
The BBC's International Business correspondent, Peter Morgan, weighs up the evidence.
Beneath a clear blue sky, on a perfect winter's day I am sitting at the helm of a half million pound yacht. The water glistens in the sunlight, the South Coast town of Hamble sits contentedly across the river from Moody's boat yard.
My only possible cause for complaint on such a perfect morning is that this gorgeous 41 foot sailing boat isn't mine. It's a top of the range demonstrator, and on board with me is Moody's DirectorTrevor Allen
The yacht building business is fiercely competitive, and Moody's principal rivals lie across the English Channel in France. From January 1st 1999 they'll be inside Europe's monetary union. Moody's, along with the rest of British industry, will be out.
A French boat builder will be able to sell his wares throughout Euroland (the informal collective term that's been coined to describe the eleven European Countries who'll join monetary union) without any risk of loosing money because of the changing value of the Franc.
In other words it can trade in a market stretching from Portugal in the West to Germany in the East almost as though it was all one country sharing a single currency. The French Franc will no longer be able to devalue, or revalue against the Lire, the Deutschmark or any other Euroland currency.
Moody's, on the other hand, must run an exchange rate risk. If the pound falls in value against the euro, our boats will become cheaper in France and Germany, their products will become more expensive here. If the pound is strong (as it has been in 1998) Moody's boats will become more expensive in Continental markets. Rival boats from Europe will become cheaper to sterling buyers.
Of course no one knows how the money markets will react. What is clear is that sterling will remain the currency of just under 60 million people. The euro will embrace a market of around 290 million. For Trevor Allen that makes British membership an appealing prospect. "I'm sure Britain will join, and as far as I'm concerned that can't come soon enough" he tells me.
But British business people, just like British politicians and for that matter the general public, are deeply divided on the desirability of Euro membership.
The Institute of Directors (IoD) has led the campaign against the Euro. Claiming that interest rates, set in Frankfurt for the whole of Europe can't possibly take account of economic conditions in the UK. What's more membership of monetary union may put Britain on a path towards the higher business taxes and greater regulation which, the IoD argues, constrain companies on the Continent.
Undoubtedly the part of Britain that sees the most significant change is the City of London, Europe's financial hub and one of the UK's biggest employers and foreign currency earners.
On 4 January 1999 the City will begin trading in euro-denominated bonds issued by Euroland governments. There'll be new currency trades between sterling and the euro, US dollars and the euro, and an ever growing list of euro denominated products.
The preparation of computer systems and the training of personnel have been massive undertakings. Confident predictions that the systems will cope can't finally be tested until the New Year. Whether the advent of the euro will detract from London's position as Europe's pre-eminent financial centre remains a matter of heated debate, although in fairness there's no evidence to show that Britain has lost out from its euro-abstinence up to now.
I have been talking about the advent of the euro to business people based in the Far East, in Europe and in the United States for at least the past five years. I believe there is a consensus amongst big business that Britain should join in the not too distant future. Amongst smaller businesses opinions are much more deeply divided.
In the coming months and years we will be spectators on the margins of one of the greatest economic experiments ever undertaken. Perhaps that will offer us the opportunity to say "This is a disaster lets have nothing to do with it", or "This is generating additional growth, and is reducing inflation and interest rates, let's climb on board".
The bitter truth, however, is that Britain's economic future is tied so tightly to that of continental Europe that we cannot remain indifferent to the euro's fate. Let us hope that the new currency does not lock Euroland into indefinite recession, does not increase unemployment and does not make the Continent less competitive. If that doomsday scenario turns out to be true, the fact that Britain has stayed outside monetary union will not protect us from the rest of Europe's travails.