[A-List] UK eurozone membership: s'il vous plait

["Michael Keaney" <michael.keaney@xxxxxx>]

French urge Britain to speed entry to the euro

MPs promised favourable terms during Paris meetings

Patrick Wintour, chief political correspondent
Tuesday November 12, 2002
The Guardian

The French government has made a private plea to senior British MPs to speed
British entry to the euro, promising flexibility in negotiations on the
terms of British entry.

In talks with MPs last week, the new French finance minister, François Mer,
said he wanted Britain to be inside the euro, stressing, according to those
present, that this would encourage a flexible interpretation of the EU's
growth and stability pact, the rules that set limits to national government
spending.

The British monetary system, including its record of inflation targeting, is
admired by the French.

Mr Mer, according to the MPs, also indicated that France would back
Britain's fast track entry by waiving the formal rules requiring membership
of the exchange rate mechanism for two years prior to full membership of the
euro.

In contrast, some accession countries in the former eastern bloc will be
required to join the ERM since they do not have the same track record of
economic stability.

The remarks were made to members of the Treasury select committee who were
in Paris last week for an inquiry into the Treasury's economic assessment of
the euro.

During the conversation, Mr Mer also suggested the French would be helpful
in negotiations over the rate at which sterling would join the euro.

Members of the Treasury committee suggested that a devaluation of between 5%
and 10%, from which Mr Mer did not demur.

On the current exchange rate, Britain would join the euro at between 66 and
69 pence per euro, a rate which many industrialists would regard as
realistic.

The MPs also held talks with the former French prime minister Lauren Fabius
and Jean Claude Trichet, the head of the French central bank and leading
candidate to succeed Wim Duisenberg, the head of the European Central Bank.
The MPs also visited the European Central Bank and members of the German
Bundesbank.

"The main conclusion most of us drew is that there is a lot of enthusiasm in
France, Germany and the ECB that we should join and the conditions for a
good negotiations on the details are in place," Nick Palmer, a Labour member
of the committee, said yesterday.

"There is willingness to be helpful about the exchange rate, membership of
the ERM and the way in which the stability pact will be applied."

British diplomats were present at the discussions and have drawn similar
conclusions from the French meetings.

The French, according to the MPs, now want to reform the stability pact to
allow the EU to take account of a member state's debt ratio before deciding
whether to impose penalties for breaching the EU's deficit limits. Debt
ratio is a long-term measure of a country's indebtedness.

Currently, the stability pact requires remedial action if a member state's
annual borrowing is higher than 3% of GDP. The French, Germans and
Portuguese have all come under pressure from the European commission to cut
spending to stay inside the stability pact.

Critics claim the restrictive rules force countries into a cycle of spending
cuts at a time when spending needs to be increased to stave off recession.

The Labour controlled Treasury committee is not likely to produce a report
on the euro until next spring. The aim is to release the report shortly
before the Treasury makes its assessment. Current betting remains that the
Treasury will claim the conditions for entry have not yet been met.