From the Electronic Telegraph (subscription): ISSUE 1468, Wednesday 2 June 1999

Euro hits new low against pound, By Toby Helm, George Jones and Helen Dunne

City: Euro plunges to new depths

EUROPEAN leaders are preparing to issue a "statement of faith" in the single currency after it slipped to its lowest point against the pound yesterday.

Sterling soared past three German marks for the first time since last July and breached the level of 10 French francs for the first time since May 4. The euro has fallen by 7.7 per cent against the pound since it was launched at 70.55p at the beginning of the year. It is now worth 65.06p.

Its continuing decline thrust the Government plans to join the single currency in 2001 or 2002 to the centre of the campaign for next week's European elections. Tony Blair was forced on to the defensive as William Hague urged him to drop a multi-million pound drive to prepare Britain for joining the euro.

The Government has sought to play down the single currency in the run-up to the June 10 elections. But Mr Hague accused Mr Blair and Gordon Brown, the Chancellor, of "burying their heads in the sand" and ignoring the truth about the euro.

Francis Maude, the shadow chancellor, said that the Government was "in denial" on the issue. He said: "While more and more of our leading commentators urge caution and pragmatism, Labour continues its headlong rush to scrap the pound."

Downing Street hit back by claiming that it would be an "act of folly" to abandon preparations for Britain to be in a position to decide whether to join the euro after the next election. The Prime Minister's spokesman said that Mr Blair had not shifted on the single currency. The spokesman said: "The Government believes it would be in Britain's interests to join a successful single currency. The intention to join is real - and so are the conditions."

Today Mr Brown will reaffirm that the Government is pressing ahead with plans that could axe the pound within five years. He will say that Mr Hague's call for the scrapping of the National Changeover Plan - practical preparations for 3.5 million businesses, ranging from the corner shop to multi-national companies - as "the height of irresponsibility. Mr Brown will tell the West Midlands CBI: "Having failed to prepare in any year up to 1997, the Tories now want to ensure that no preparations are made for the euro at all."

But there is concern in Government that the slide in the euro is playing into the Tories' hands. Robin Cook, the Foreign Secretary, revealed the anxieties when he accused the Tories of trying to turn next week's vote into a referendum on the single currency.

Mr Hague, judging that the troubled euro has given the Tories a popular platform on which to rebuild their support, plans to put his "save the pound" campaign at the heart of his efforts to win the next general election.

European leaders meeting in Cologne tomorrow are under growing pressure to make a concerted attempt to stem the euro's slide. Ottmar Schreiner, a close political ally of Gerhard Schrver, the German chancellor, said that EU leaders would issue a statement on the currency at the meeting of heads of government and finance ministers.

Jacques Santer, the caretaker president of the European Commission, who has predicted that the euro will become a serious rival the yen and the dollar, said he was not "unduly worried" by its 11 per cent fall against the dollar since January. He said: "The euro zone still has great potential to develop. The euro has proved itself and it will continue to prove itself."

Last night, in a clear indication of nervousness about the effect that news of an impending statement could have on the money markets, the German government refused to confirm that one would be issued. But Hans Eichel, Germany's finance minister, said that his country had a "clear position" on the euro and that he wanted this to be discussed in Cologne. Mr Eichel said that he would be pressing at the Cologne summit for countries such as Italy to stick to tight rules on budgetary discipline to build faith the new currency.

Last week Italy asked to be allowed to loosen its spending target - a move that caused a fresh wave of nervousness about the commitment of euro zone countries to budget discipline. The euro dipped further on the foreign exchanges after European finance ministers reluctantly agreed to the Italian request.

Mr Blair is facing a setback at the Cologne summit over his efforts to secure a reprieve for duty free sales for travellers between EU countries. Downing Street confirmed that he would join France in making a last-ditch appeal for duty free shopping to be extended beyond the 30th of this month to ensure that a workable "successor regime" was put in place.

In a letter to Lionel Jospin, the French prime minister, Mr Blair said he agreed "strongly" that progress needed to be made in discussions "about the consequences of ending duty free". But British sources say that the Government has given up any real hope of overturning the 1991 decision to scrap it.

Unanimity among the 15 EU nations is needed to overturn the decision and several countries, including Denmark, the Netherlands and Finland, believe that abolition should go ahead. Mr Santer said that duty free sales were illogical on ferry and air journeys between members of a single market.

It is estimated that up to 30,000 British jobs could be at risk if duty free is abolished. That figure could include up to 10,800 jobs in ferry companies and in shore jobs around ports. Kent is likely to be the hardest-hit county, with about 9,000 jobs at risk and the prospect of the loss of 13.5 million passengers who would normally have travelled through the area.

But European governments complaining about job losses when duty free sales are abolished have ignored an offer of EU cash help to soften the blow. Mr Santer said that not one had bothered to respond.

-- Old Git (anon@spamproblems.com), June 02, 1999

Answers

Maybe it will improve once all that new code allows settlements to clear. Unless y2k gets here first...

-- a (a@a.a), June 02, 1999.

Thanks for the info. I hope the British are sensible enough to stay withthe Pound Sterling. If they are caught in the driftnet of monetary union how will they ever get out?

-- Rick (doc_u_ment@hotmail.com), June 02, 1999.

Tony Blair has his head in the clouds. The euro was concieved to improve the plight of lazy europeans with crap economies. The British people love their country and they love their currency. Their hearts and minds are not behind this. I know because I lived there. Their government's going the same way as ours; no respect for the people. God help them.

-- Gia (Laureltree7@hotmail.com), June 03, 1999.

And in today's Telegraph:

Sliding euro nears parity with dollar, By Helen Dunne, Associate City Editor

THE euro suffered another dismal trading session yesterday hitting new lows against both the pound and the American dollar as dissatisfaction at the European Central Bank's inability to stem its slide grew.

The beleaguered European currency slipped from 65.06p to 64.37p, which represents almost a full penny off its official close on Friday, before the bank holiday weekend, as the ECB held interest rates steady at 2.5pc. The currency has now lost over 11pc of its value against sterling since its launch on January 1.

It also slumped to a new low of $1.0330 against the American dollar, leading foreign exchange traders to predict that the euro would slip to parity against the US currency within days. Mark Cliffe, European economist at ING Barings, said: "From a technical point of view, the euro is at a critical point. There is no obvious stopping point between here and parity."

The euro's low against the dollar, which is more than 13pc off its peak, is close to the lowest point that the German mark reached against the dollar over the past decade. Wim Duisenberg, president of the ECB, stressed that the euro had a clear potential for a stronger external value, but failed to indicate that the ECB would take action to prevent the currency falling significantly further.

Thomas Mayer, senior economist at Goldman Sachs, said: "The ECB's agnostic stance on the euro is remarkable. The ECB president's relatively sanguine attitude about the euro's exchange rate could contribute towards weakening international investor confidence in the currency."

Rob Hayward, economic adviser at Bank of America, said: "There is a lack of confidence in the European currency. When the decline in the euro is related to economic fundamentals, it can be ignored by central banks. If it becomes lack of confidence they have to be more concerned."

Separately, gold tumbled to a 20-year low yesterday. It closed at a mid price of $267.05 in London, down from $267.25. The price of gold has been depressed by the proposed sale of more than half the UK's gold reserves.

-- Old Git (anon@spamproblems.com), June 03, 1999.