In These New Times

The Earth Times

London – As planeloads of tourists armed with empty suitcases roam London’s Oxford Street for cheap Christmas bargains, the Labour government of Gordon Brown is keeping a stiff upper lip on the British pound’s relentless slide towards parity with the euro. “We have never had a policy of targeting the pound,” Yvette Cooper, a cabinet minister and close adviser of Brown told journalists curtly. She recalled that attempts by previous British governments to meddle with exchange rates had been “unsuccessful,” in what was a clear reference to sterling’s ejection from the European Exchange Rate Mechanism (ERM) in 1992. Now, as then, currency speculators had stoked the fire by seeking to make hefty gains from bets they had placed against the pound. Sterling, which this week hit an exchange rate of 1.06 against the euro, has lost a quarter of its value against the euro – and the US dollar – since the summer. Analysts predict that parity could be reached against the eurozone currency early in the new year. While tourists, exporters and hoteliers rejoice at the trend, British holidaymakers wince at their currency’s near-parity with the euro, which Britain refused to join in 1999. While the government maintains that sterling’s downward trend will be halted as European economies weaken further, analysts believe that there is worse to come for the stricken currency. “This is likely to get worse as more investors lose confidence in the pound amid fears about the UK economy,” said Mark O’Sullivan, a dealing director at Currencies Direct. Martin Slaney, head of derivatives of GFT Global Markets, agreed: “The euro is becoming the darling of the currency markets and there’s no confidence in the pound. I would not be surprised if it hit parity with the euro and even fall below that.”The government has so far reacted calmly to signs that there could be a full-blown run on the pound, saying that it believed the downward trend could not be sustained. Officials also point at evidence that the pound had, for a long time, been “overvalued.”However, the British currency’s decline has, inevitably, reignited the debate about whether or not Britain should join the euro. Speculation was fuelled by EU Commission chief Jose Manuel Barroso who said recently that Britain was now “closer to the euro than ever before.””I’m not going to break the confidentiality of certain conversations, but some British politicians have already told me, ‘If we had the euro, we would have been better off’,” Barroso said in an interview with French radio. His remarks provoked an angry response from Downing Street. “Our position on the euro is the same. We have no plans to join the euro,” a statement said. Officials have revealed that Brown, who is a long-standing opponent of introduction of the euro in Britain, had made it clear to ministers that he would “not tolerate” a debate on the euro at present. “Officially, the euro debate is off the agenda, but unofficially, it’s in the anteroom,” said leading British economist Will Hutton.