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1998 In Review: Four EU Countries Outside EMU

  • Ben Partridge

London, 14 December 1998 (RFE/RL) -- Europe's single currency, one of the most ambitious monetary experiments ever attempted, will be launched on January 1 with four EU countries staying on the sidelines -- Britain, Sweden, Denmark and Greece.

The first three have chosen not to join, at least for now, because they are not convinced the experiment will work. They want to see the single currency in action before committing themselves. The fourth, Greece, wants to join but failed to qualify because its inflation level was too high to meet the qualifying standards.

Britain and Sweden say they will allow the public to decide whether to join through either a general election or a referendum. But they are unlikely to put the question to their skeptical voters for two or three years. Denmark says it will wait at least until 2001 to give its voters time to change their minds in a referendum.

Recent opinion polls suggest that in both Sweden and Denmark supporters of EMU are edging ahead of opponents. But a recent opinion poll in Britain showed that a majority of 54 to 30 percent said they would vote "no" to joining the euro. But they also said Britain would not be able to stay out if the currency succeeds.

Some insiders in Brussels portray Britain, Sweden and Denmark as EU "pariahs" because of their decision to opt out of EMU, intended as a key milestone on the road to full political and monetary union. They say the three will be politically marginalized and have little influence over economic decisions as a penalty for their skepticism.

The three, plus Greece, have been excluded from the 'Euro 11', a committee which meets every month to discuss coordination of economic policy in the area known as 'euroland' or the 'euro zone.'

But critics of EMU say the non-joiners are shielding themselves sensibly from the risk, however slim, that the project will collapse. Skeptics say this is a real danger because one set of economic rules cannot be made to work for 11 very different economies. They also say it is a big risk to impose a single interest rate regime on economies that are not truly convergent. They note that Ireland's economy has been growing at eight percent, but Italy's at a sluggish two percent.

Euroskeptics also say that the non-joiners will be able to retain control over their domestic economic policy, in the face of a trend that has seen more power draining from national governments to EU institutions. The 11 countries launching the euro have agreed, in effect, to give up powers to run their own economies to a European Central Bank in Frankfurt. The ECB will run monetary policy and set interest rates that will apply across the whole of "Euroland".

The euro-skeptics, particularly in Britain, say a "one-size-fits-all" interest rate may not be appropriate for countries with different inflation and unemployment rates. This could lead to loss of public support for the euro, even social instability if the monetary experiment worsens high unemployment in many EU regions.

However, supporters of the euro say the British, Swedes and Danes will miss out on its benefits. They claim that the euro will be so strong and successful that interest rates and inflation will be lower than in the "opt-out" countries. They also say monetary union will stimulate cross-border trade; make it easier and cheaper to do business in the new euro-zone; and make it easier for firms to plan ahead by eliminating exchange rate uncertainties.

EMU enthusiasts use a railway metaphor to reinforce their arguments, saying countries failing to join the euro will miss the train as it leaves the station on January 1, and will be left behind as the rest of their EU allies integrate their economies.

Still, skeptics say that the best thing about being an EMU "out" is that the decision is reversible, while being an EMU "in" is not.

There is no legal provision in the 1992 Maastricht Treaty for participating states to get out of EMU, once they are locked in. The deeply-skeptical British Conservative opposition leader William Hague describes EMU as "a burning building with no exits." But a country that really wanted to get out would certainly be able to do so, although the costs and complications would be huge.

The Central and East European countries seeking membership in the EU are closely following the debates about the pros and cons of a wait-and-see attitude. Their main concern is that if the monetary experiment runs into difficulty, EU enlargement could be delayed.

The founding fathers of the European Community, later the European Union, were already talking about a single currency in the late 1950s. Aside from promoting cross-border trade, they believed it would be a symbol of unity in a post-war Europe.

But there are many skeptics in Britain, Sweden and Denmark, who say EMU is a gamble. In an editorial outlining the drawbacks of the monetary experiment, Britain's Daily Telegraph newspaper said: "Rockets do occasionally blow up. And when they do, it is on the whole better not to be on board."

(Second of a series on European Monetary Union.)