16 April 2003

EZA 520 - Change of View

UK Government to Delay Euro Referendum
Change of view: UK government to delay euro referendum due to economic and political undertainties.

SummaryAsset conclusions: Convergence plays on sterling, UK interest rates should be reviewed after a shift in Blair government view on euro entry vote

Contents
The chances of a referendum on sterling entry to the euro in Great Britain this year are now minimal. This is a change of view (EZA rpt 488/03Jan10). Many of the economic barriers to euro entry for the UK have been removed, but political reasons dictate that the government of British Prime Minister Tony Blair has taken a plebiscite off the agenda for 2003. Previously, our information had indicated the Labour government was ready and willing to press ahead with a referendum, potentially on Oct. 16 this year. Our latest information indicates that the assessment of the five economic tests by the UK Treasury - likely now in early May03 - will produce a 'not yet' verdict, with the door left open for a referendum next year. The government will wait and see if conditions favorable to a referendum arise before the next election. The build-up to the Iraq war initially added a new element to Downing Street's position on European Monetary Union, but the assessment of the full implication had to await developments in the war itself. The UK's just issued 2003 budget was also an economic event that shaped the final judgment on the referendum.

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© Graham Bishop