Britain's Major Balks At Single-Currency Plan for Europe

Prime minister's plan under attack in his own party

BRITAIN'S Prime Minister John Major is digging in his heels against plans for a single European currency.

By proposing new prerequisites before his nation will merge its money system with members of the European Union, Mr. Major is attempting to curry favor with rebel parliamentary members of his Conservative Party. But both his own cabinet and the British business community are sharply divided over this new tack.

This week, Kenneth Clarke, Britain's chancellor of the exchequer, is expected to explain why the goal of a currency merger by 1999 (as laid down in the Maastricht Treaty), or as early as 1997, is unrealistic.

Mr. Clarke will argue that a single European currency is unwelcome until employment levels in the EU are more uniform than they are now, according to Treasury sources in London.

The term used to describe the new criteria Britain wants to impose is ``structural convergence,'' meaning that labor markets throughout the 15-nation European Union need to be harmonized before a common currency is desirable.

The current 9 percent unemployment rate in Britain is well below that of Spain, Greece, and other weaker European economies.

But stiffer terms for a currency merger seem likely to bring Britain into conflict with its EU partners.

Need for convergence

The Maastricht terms for a single currency stress the need for convergence on matters such as inflation, long-term interest rates, and budget deficits. The idea is that economies using a common currency need to be operating more or less in harmony.

By adding employment levels to the equation, Britain would be introducing new criteria that were not fully debated or formally agreed upon at Maastricht.

Major's move is also controversial within his own ruling cabinet.

On Feb. 5, Michael Heseltine, president of the board of trade, spoke out against new conditions. Britain ``must be involved in work to prepare a single currency,'' Mr. Heseltine said, rather than ``wrap ourselves in the national flag and give not an inch.''

Underlining the cabinet division, Jonathan Aitken, another senior minister, said: ``I don't want a single currency, period.''

The ministerial split reflects widespread disagreement in the Conservative Party. Major's move can be traced back to the expelling of nine Conservative members of Parliament from the parliamentary party who oppose further integration . This robbed the government of an assured majority in the House of Commons.

Wooing skeptics

In an attempt to woo these ``Euro-skeptics'' back, the prime minister has adopted a tougher approach to a 1996 EU intergovernmental conference at which moves toward a single currency will be high on the agenda.

Heseltine, who ran against Major for the Conservative Party leadership in December 1991, is making no secret of his refusal to switch to the prime minister's line.

He points out that no matter what Britain decides to do, Germany, France, Belgium, the Netherlands, Luxembourg, and Austria are likely to decide on a merger of their currencies well before the end of the century.

While the political argument about a single currency rages, a lively debate is developing among business leaders. A single currency would bring huge savings in transaction costs for businesses and travellers, and it would give trade a massive fillip, says Christopher Johnson, economic adviser to the Association for the Monetary Union of Europe, a group including some of Britain's largest banks and retail firms.

A survey of members of the Confederation of British Industry showed 4 out of 5 of its members favor a single currency. But the Institute of Directors, another influential employers' umbrella group, is uneasy at that prospect.

Tim Melville-Ross, director-general of the institute, points to Britain's large dollar trade and contends that setting a single currency for Britain and the rest of the EU would be ``extremely difficult.'' He is also worried that a single European currency would mean Britain losing control of its right to adjust interest rates.

Sir Edward Heath, the former Conservative prime minister, who took Britain into the European Community in 1973, has already criticized Major for ``muddying the waters'' on a single currency. He has been joined by Lord Howe, the former deputy prime minister, who last month warned Major that Britain was in danger of isolating itself in Europe even more than during the 12-year Thatcher premiership.