George: Euro warning

Eddie George: I'm nervous.......

George Warns of Euro Danger

Mr George said he was "frankly nervous" at launching a single European currency at a time of very high unemployment at differing rates across Europe . "There would, other things being equal, be real economic advantages in exchange rate certainty across the single market area, which can only be realised through the single currency," he said. "But there are real risks. We are not all starting from the same station."

Mr George expressed concern about the difference in economic cycles between Britain and some other European countries. "The possibility of such cyclical divergences will not simply disappear on January 1, 1999 and they would seriously complicate the operation of a single monetary policy," Mr George said.

"But more fundamentally ... I am frankly nervous at the prospect of introducing the euro at a time of very high and very different rates of unemployment across Europe," the Governor said. "My concern is that the persistence of these wholly unacceptable levels of unemployment across Europe, and the very real difficulty of implementing appropriate supply-side reforms, could begin to undermine public support for macro-economic stability in some countries."

Mr George said there were some suggestions that this might be beginning to happen. "It may be for this reason that the foreign exchange markets are implying that they expect relative euro weakness - to our own considerable embarrassment as a result of the corresponding strength of sterling's exchange rate," he added.

Mr George said that if the euro went ahead, he had no doubt that the European central bank would try to maintain price stability. "But its job would be enormously more difficult if this came to be seen, at least in some countries, within the euro area - however mistakenly - as an obstacle to the end-objectives of economic policy, including particularly increasing employment."

Mr George was eager to stress that he was not opposed to economic intervention to tackle unemployment. "I share the view that unemployment needs to be addressed fundamentally through supply-side policies, though it may be that the problem is currently being aggravated in the short term by the heroic attempts being made to meet the fiscal criteria according to the Maastricht timetable in a context of cyclical weakness."