Blair's Stealth Strategy on the Euro
Even as Europeans celebrate the successful Jan. 1 launch of euro coins and notes, one question dogging politicians and bankers across the Continent is: "When will Tony Blair join the party?" Britain is sitting on the fence, and European policymakers are eager to draw it in. They worry that the new currency won't be a true rival to the dollar until Britain--the European Union's second-largest economy--embraces it.
As Britain's Prime Minister, Blair would certainly like to lead his country into the euro zone. He fears that Britain will be taken less seriously in European councils as well as Washington if it remains on the fringes. He also fears that the pound's volatility against the euro may scare off the foreign investment that has been a mainstay of the British economy. "The euro is now a reality," he said on Jan. 3. "So I think the idea that we can run away from it and pretend it doesn't exist would be very silly."
He may well be right. But Blair faces an uphill task persuading the British public to accept the euro. Public opinion is running against it by 2 to 1. Despite his proven electoral prowess, Blair would probably lose a referendum on the euro if it were held today. Yet he has promised Britons such a vote if he decides to recommend entry once the Treasury has agreed that this would benefit the British economy.
So Blair's strategy is to try to change minds while preserving the option of backing away. He will be watched closely by such Cabinet colleagues as Chancellor of the Exchequer Gordon Brown and Foreign Secretary Jack Straw. These politicians won't want to see their own future prime ministerial chances squandered in a losing cause. "Blair can't stick his neck out until he sees a substantial move in the polls," says Robert M. Worcester, chairman of the MORI polling organization in London. Worcester, Britain's best-known pollster, doubts Blair will see that shift before the next general election, which must occur by May, 2006.
But some analysts think a persistent campaign could turn the tide. An early January survey by YouGov, a London online polling agency, found that 18% wanted Britain to adopt the euro as soon as possible, while 34% were in favor of joining "if and when economic conditions are right." That means 52% were broadly supportive, while just 46% were in the two "no" categories: "stay out on principle" and "stay out for at least the next four to five years." Says Stephen Shakespeare, director of opinion research for YouGov: "I would tell the government that they can win a poll on this in a year or two."
Blair plans to use corporate europhiles such as British Airways Chairman Colin Marshall to warn the public that Britain will lose influence and suffer economically if it chooses isolation. Should public opinion shift, he will raise his profile. Until then, his chief salesman will be Europe Minister Peter Hain. "He has been told to push the boat out and see how it goes," says a Labour Party insider.
But the respective economic fortunes of Britain and the euro zone aren't helping make the case. The Bank of England so far has proved much nimbler than the European Central Bank at fiddling with rates to ward off the effects of the global slowdown. Britain is enjoying a consumer boom, with retailers counting their receipts from a festive Christmas and car dealers reporting 2001 sales up nearly 11%. Michael Saunders, a Schroder Salomon Smith Barney economist in London, forecasts 2.2% growth for Britain this year, vs. a paltry 1% for the euro zone.
Indeed, Blair will be reluctant to join if the performance of the euro and its managers does not improve. That means ending the squabbling at the ECB. A recovery in the euro's value against the dollar and sterling also seems a prerequisite. "We are trying to sell a currency that the tabloids are trying to persuade the British people is a failure," says Simon Buckby, director of Britain in Europe, the pro-euro lobbying organization. "It needs to be a success."
It is hard to imagine why Blair, Europe's most successful politician, would want to put his reputation on the line for such a hotly contested issue. But having destroyed his opposition twice in elections, he may think he can pull off just about anything.
By Stanley Reed in London