Euro is left by the wayside as Britain debates war

It used to be the hottest topic in British politics.

But now the question of whether Prime Minister Tony Blair will drag his reluctant public into the euro monetary zone is being sidetracked by the more pressing problem of Iraq.

The decision on whether to switch to the single European currency is crucial not only for Britain, but for Europe and for other countries that do business in Britain, including the United States. Blair's finance chief, Gordon Brown, has called it "the most important economic decision that this country has had to make."

But already drawing formidable opposition because of his hawkish stance on disarming Saddam Hussein, Blair no longer has the appetite for pushing another unpopular project before the British people, say analysts, economists, and even pro-euro activists.

Martin Essex, senior economist with Capital Economics, a London think tank, says that momentum toward the euro has faltered so much that a public referendum is unlikely until after the next elections, due by 2006. "The government has more important things to think about at the moment. The war in Iraq is occupying minds. Public services are also a make-or-break issue for [the government], so why add an extra problem?"

While Blair sees the benefits of joining the euro zone, the majority of Britons do not. Polls show that two-thirds of the people are opposed to swapping their dearly beloved pound for the euro, perceived here as sterile and weak.

Because the British public will have the final say on the issue by referendum, it is politically risky for Blair to champion the cause - particularly now, when his fervor for waging war on Iraq has made him more unpopular than at any time in his six-year tenure. The latest polls show that only 35 percent of people are satisfied with Blair's personal performance as prime minister, while 55 percent disapprove.

At the same time, Blair is under pressure from foreign investors, prime among them US carmaker Ford, who want the country to join the euro zone. They say that the ever-changing exchange rate makes it hard to compete and impossible to make long-term investment plans.

"The need for stability of exchange rates and for competitiveness is the reason we are keen to see UK have a referendum as soon as possible," says Ford executive Gary White, echoing recent remarks from company president Nick Scheele, who warned of "a significant risk to the country's manufacturing and exporting sector if Britain doesn't join the euro [zone], and in timely fashion."

A recent survey conducted by BritishAmerican Business Inc., a transatlantic business organization, found, moreover, that more than 60 percent of US businesses with a foothold in Britain said the country should move to the euro before the next elections.

"There is quite a strong feeling among American investors," says Danny Alexander of Britain in Europe, a pro-euro umbrella group. "They choose us for the language and cultural similarities, but ultimately they are looking for a foothold in the European market, and since the euro was introduced, the playing field has been tilted against us."

"There are substantial and rising economic costs to be outside the euro zone," he adds. "We still have confidence that we will get a referendum in this parliament."

Upon reelection in June 2001, Blair promised that a decision on the euro would be taken within two years, and expectations were that a referendum would be called by June 7. The government left itself the option of postponing the vote if it determined that Britain has not sufficiently melded economically with Europe. Some here are expecting Brown to announce such a finding in his budget speech next month.

An aide to Brown recently leaked remarks to a national newspaper that the chancellor had decided it was not in Britain's interest to join. Then a Treasury report criticized Europe for its lethargy in implementing economic reform. Europe hit back, murmuring that Britain's public finances risked breaching euro-zone rules.