06 August 2006
Postcard from Euroland - September 2001
Having just returned from a few - far too few - delightful days in the French alps, I could not help noticing there a sense of national excitement, even tension. Something is in the air, a sense of change, a feeling that we are witnessing history being made. If nations have stomachs (and if any of them do, France surely must have one), then the country has butterflies. Big time.
The Euro is coming, and as the radio commercials keep reminding everyone, in just a matter of weeks. The opinion polls have now moved from 50%/50% firmly in favour of the Euro; if there are any lingering doubts it's about how, not why. There are worries about the awkward exchange rate, which converts about 6.5 francs into a Euro. Germany has a rate of 2 to 1, and Italy 2000 to 1, but converting 6.5 to 1 is not obvious - "bientot une cassette video vierge ne coutera plus 80 francs, mais EUR12.20 - c'est facile!" claims the radio commercial, somewhat breathlessly. The French are going to have to get good at mental arithmetic. Not a national characteristic that springs to mind when you think of the French. Foodies - certainly; sophisticated - without a doubt; but mathematicians - no, I don't think so.
Preparations are well advanced, with dual pricing on every product, and more recently with the Euro pricing being more prominent. The marketing price point is starting to be around the Euro - with prices moving from for example Frs19.99/EUR3.02 to EUR2.99/Frs19.58. The government is concerned that retailers will use this rounding to the next price point as an excuse to raise prices (as happened in Britain in 1971), and there is some evidence that inflation is already being driven up.
There are also concerns about whether all the ATMs are going to be filled with enough Euros on 1st January, but overall the French have faith that it will all be all right on the night. The nay Sayers are nowhere to be seen. There is no Norman Tebbit arguing that the Euro will never happen; no David Owen saying "Non", not even (as there was today in The Times), 700 industrialists claiming the government would lose control of the economy if the Euro is adopted. So why is Europhobia such a uniquely British phenomenon?
The main argument for joining is that the elimination of exchange rate risk and exchange costs will encourage cross-border economic activity and lower prices, or put simply, people will be better off. There will be a magnetic effect towards the Euro, and I have certainly seem some examples of that already. My own company sells products over the Internet, and the supplier we are using for the credit card processing can only deal in dollars or Euros. The main investor in the company now raises all its funds in Euros, as most of the money comes from abroad.
A senior BMW executive was recently quoted as saying that Britain's non-adoption of the Euro had led BMW to source most of the machine tools and the components for the new Mini in Germany, and British suppliers had lost out as a result. (I personally found that one a bit odd, because most companies try to reduce their foreign exchange exposure by matching their local currency sales with local currency expenditure, and many of the Minis will be sold in Britain, but I suspect he was referring more to the high relative value of the pound).
As I ask people what the reasons for not joining are, I have heard a lot! These seem to boil down to the following:
- There is a loss of sovereignty because interest rates will be set by the ECB in Frankfurt, rather than by the Bank of England in London
- Economies move in different economic cycles, making it impossible to have a common monetary policy that works for every country all the time
- The Europeans have a different, more dirigiste, approach to economics which goes counter to the more open market British attitude.
- A whole set of emotional issues such as not wanting to be linked to a weak currency, the pound is an intrinsic part of British culture, 'Save the Pound' etc.
Of these, the only one that really stands up to close scrutiny is the argument about the loss of sovereignty. Yes, there are different economic cycles, but that is just as true within a country. Britain has often seen a booming London at the same time as a slumping North. Or a booming services sector at the same time as manufacturing stagnates.
The pro-lobby argues that there is not a loss of sovereignty. One politician recently called it a 'pooling' of soverignty, where like being a shareholder in a large company, you have less say, but in a larger entity. A more powerful argument is that governments already have little control, having ceded it to the Central Bankers and to the international money markets. Thus Eddie George sets the interest rates, not the government, and he can only do what the markets let him. Being the global, open market trading country that Britain now is, we have already ceded our sovereignty to the markets in exchange for being richer.
That is the nub of the argument - do we want to be richer? The price is some sovereignty, much of which we don't really have anyway. If the opinion polls are to be believed, the British do not want to be richer.
French friends I ask put the British attitude down to our historically consistent wariness of change. One summed it up by saying "you were one of the last countries to join the Iron and Steel community after the war, and you will be one of the last to join the Euro, but it will happen eventually".
I have a different theory about the negative attitude though, and it is to do with timing. Within two months of the introduction of the Euro, national currencies will be taken out of circulation. Within six months, only the central banks will change the old currencies. Decimalisation in Britain on the other hand was started 30 years ago and is still not finished. A motoring magazine I was reading recently has car lengths in inches but the weight in kilos. A bed I bought in London was metric, but the mattress was imperial, so it did not fit. We bought 3 yards of carpet for a room - the carpet width was 4 metres.
So perhaps if the ECB would only agree to allow a longer transition - say 60 years rather than 60 days - Britain might indeed agree to adopt the Euro.
The Euro is coming, and as the radio commercials keep reminding everyone, in just a matter of weeks. The opinion polls have now moved from 50%/50% firmly in favour of the Euro; if there are any lingering doubts it's about how, not why. There are worries about the awkward exchange rate, which converts about 6.5 francs into a Euro. Germany has a rate of 2 to 1, and Italy 2000 to 1, but converting 6.5 to 1 is not obvious - "bientot une cassette video vierge ne coutera plus 80 francs, mais EUR12.20 - c'est facile!" claims the radio commercial, somewhat breathlessly. The French are going to have to get good at mental arithmetic. Not a national characteristic that springs to mind when you think of the French. Foodies - certainly; sophisticated - without a doubt; but mathematicians - no, I don't think so.
Preparations are well advanced, with dual pricing on every product, and more recently with the Euro pricing being more prominent. The marketing price point is starting to be around the Euro - with prices moving from for example Frs19.99/EUR3.02 to EUR2.99/Frs19.58. The government is concerned that retailers will use this rounding to the next price point as an excuse to raise prices (as happened in Britain in 1971), and there is some evidence that inflation is already being driven up.
There are also concerns about whether all the ATMs are going to be filled with enough Euros on 1st January, but overall the French have faith that it will all be all right on the night. The nay Sayers are nowhere to be seen. There is no Norman Tebbit arguing that the Euro will never happen; no David Owen saying "Non", not even (as there was today in The Times), 700 industrialists claiming the government would lose control of the economy if the Euro is adopted. So why is Europhobia such a uniquely British phenomenon?
The main argument for joining is that the elimination of exchange rate risk and exchange costs will encourage cross-border economic activity and lower prices, or put simply, people will be better off. There will be a magnetic effect towards the Euro, and I have certainly seem some examples of that already. My own company sells products over the Internet, and the supplier we are using for the credit card processing can only deal in dollars or Euros. The main investor in the company now raises all its funds in Euros, as most of the money comes from abroad.
A senior BMW executive was recently quoted as saying that Britain's non-adoption of the Euro had led BMW to source most of the machine tools and the components for the new Mini in Germany, and British suppliers had lost out as a result. (I personally found that one a bit odd, because most companies try to reduce their foreign exchange exposure by matching their local currency sales with local currency expenditure, and many of the Minis will be sold in Britain, but I suspect he was referring more to the high relative value of the pound).
As I ask people what the reasons for not joining are, I have heard a lot! These seem to boil down to the following:
- There is a loss of sovereignty because interest rates will be set by the ECB in Frankfurt, rather than by the Bank of England in London
- Economies move in different economic cycles, making it impossible to have a common monetary policy that works for every country all the time
- The Europeans have a different, more dirigiste, approach to economics which goes counter to the more open market British attitude.
- A whole set of emotional issues such as not wanting to be linked to a weak currency, the pound is an intrinsic part of British culture, 'Save the Pound' etc.
Of these, the only one that really stands up to close scrutiny is the argument about the loss of sovereignty. Yes, there are different economic cycles, but that is just as true within a country. Britain has often seen a booming London at the same time as a slumping North. Or a booming services sector at the same time as manufacturing stagnates.
The pro-lobby argues that there is not a loss of sovereignty. One politician recently called it a 'pooling' of soverignty, where like being a shareholder in a large company, you have less say, but in a larger entity. A more powerful argument is that governments already have little control, having ceded it to the Central Bankers and to the international money markets. Thus Eddie George sets the interest rates, not the government, and he can only do what the markets let him. Being the global, open market trading country that Britain now is, we have already ceded our sovereignty to the markets in exchange for being richer.
That is the nub of the argument - do we want to be richer? The price is some sovereignty, much of which we don't really have anyway. If the opinion polls are to be believed, the British do not want to be richer.
French friends I ask put the British attitude down to our historically consistent wariness of change. One summed it up by saying "you were one of the last countries to join the Iron and Steel community after the war, and you will be one of the last to join the Euro, but it will happen eventually".
I have a different theory about the negative attitude though, and it is to do with timing. Within two months of the introduction of the Euro, national currencies will be taken out of circulation. Within six months, only the central banks will change the old currencies. Decimalisation in Britain on the other hand was started 30 years ago and is still not finished. A motoring magazine I was reading recently has car lengths in inches but the weight in kilos. A bed I bought in London was metric, but the mattress was imperial, so it did not fit. We bought 3 yards of carpet for a room - the carpet width was 4 metres.
So perhaps if the ECB would only agree to allow a longer transition - say 60 years rather than 60 days - Britain might indeed agree to adopt the Euro.
# posted by DavidF @ 14:32 
