- The Observer,
- Sunday June 8, 2003
The Bundesbank has issued a challenge to the British Government by reminding it that entry to the Eurozone would require a preliminary period back in the reviled Exchange Rate Mechanism.
Speaking to a London audience last week, Dr Jürgen Stark, vice-president of the German central bank, said observance of the Maastricht criteria to qualify for joining the Eurozone, which include ERM membership, was more important than the British Government's 'five tests'.
As far as Gordon Brown is concerned, this is a red rag to a bull. When Shadow Chancellor in 1992, Brown was fully supportive of ERM membership, yet it was John Major's Conservative government that received all the opprobrium for the disaster of Black Wednesday, when it lost billions trying to maintain the value of sterling. After that Brown turned vehemently against the ERM. He has continually dismissed suggestions from Brussels that Britain should rejoin, and has argued that this would be unnecessary.
Re-entry of the Bundesbank into the debate is particularly significant because it was the Bundesbank that the Major government blamed in September 1992 for lack of full support when the pound came under severe pressure just before Black Wednesday.
With all eyes on Brown's assessment of the five tests due tomorrow, economists at Lehman Brothers have issued a study (The UK and the Euro - Global Economics) which says that 'since the Treasury conducted its last assessment of the five tests, six years ago, the UK and euro-area business cycles have converged significantly'.
The big question to be raised by the Treasury assessment is whether convergence is sustainable. On this score the Chancellor is expected to make doubts about the sustainability of convergence one of the main reasons why his verdict is 'not yet'.
