The British pound slipped again to a 15-year low against the dollar on Friday, after a landslide electoral victory by the Labor Party amplified talk that Prime Minister Tony Blair may speed the replacement of the pound with the euro.
Many investors said the decision on whether Britain will join the 12-nation euro currency union will essentially be political. When William Hague resigned Friday after leading his Conservative Party to disastrous defeat on an anti-euro platform, it reinforced the perception that the outcome had lowered the political hurdles for Blair.
"Hague's departure certainly demonstrates that the `no' campaign has taken a heavy blow," said Graham Bishop, an independent economic consultant.
The election outcome was not a surprise, and speculators had begun pushing the pound down sharply two days before the balloting. But Hague's resignation set their hammers falling in earnest, and the pound was driven down to US$1.3775, lower than at any time since February 1986. It closed in New York at US$1.3806. Over all, in this election week, the pound lost 2.8 percent of its value against the dollar, and 2.7 percent against the euro in New York trading.
"I think it's got a bit overexcited, this whole euro story," said Michael Lewis, senior economist at Deutsche Bank, who said he nonetheless believed the pound could sink lower. Some big banks have lowered forecasts for sterling over the next few months, and one, WestLB in Germany, foresees US$1.34 to the pound this summer.
But economists said that there is little chance of a quick move to adopt the euro.
Before the election, Blair said he expected to decide within two years whether to take the most pivotal step, calling a referendum on adopting the euro. Gordon Brown, the finance minister, said Thursday that the process could take even longer, with two years spent just to assess whether membership in the euro zone would meet the five economic tests Britain has set for entry.
Public debate would follow the assessment, and only after that would a referendum be scheduled. Bishop, the consultant, said that at the soonest Blair might begin making a public case for adopting the euro in September.
Whatever the timing, analysts said, Blair leads a nation whose attitudes about the euro range from ambiguous to downright hostile. "The real obstacle lies not in the economic tests, but in whether the government can get the assent of the people in a referendum," said Ian Stewart, chief British economist at Merrill Lynch. He said he doubted a referendum could be held before 2003.
Hague sought to paint Thursday's election as a vote for or against British euro membership, saying repeatedly that the ballot was "the last chance to save the pound." His party's resounding defeat suggested that the rallying call did not resonate with voters.
On the other hand, opinion surveys since the euro was introduced in Continental Europe in January 1999 have consistently found that two-thirds of Britons oppose entry, though the same proportion said they think it is inevitable.
Beyond politics, complex economic and technical issues underscore the differences between Britain's possible dalliance with the euro and the Continent's marriage to it. The core euro-zone countries, especially France and Germany, had their economies and currencies marching in step for years before January 1999, while Britain has kept its own somewhat asynchronous economic rhythms and fell rather calamitously out of the exchange-rate coordination system in 1992.
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