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Heads or Tails

Our June survey of Financial Director readers found that half the respondents believe that if we didn’t join EMU, economic and monetary union, British businesses would be at a disadvantage. Only one-quarter said British companies would benefit by staying out of the euro. The remainder either took a neutral stance or didn’t know.

But when respondents were asked how they would vote in a referendum, the ‘No’ votes won the poll: 46% said they would vote against the euro, while 45% would vote in favour and 9% were undecided.

So why do FDs say they would oppose something that is supposedly good for business? Closer scrutiny of the responses reveals that those who didn’t think the euro was good for business were almost unanimously in the ‘No’ camp. Likewise, those who were neutral or undecided about the effect on business were inclined to vote No. And even a small but significant percentage of those who saw benefits from EMU would also vote against joining the euro.

FDs from businesses that have no dealings with the eurozone (about 30% of the survey sample) were against joining the euro. Where businesses have a lot of exports to (or subsidiaries in) the eurozone, FDs were more likely to support euro membership, but more than one-third of FDs from companies with significant exposure to the eurozone would still oppose membership.

Another surprise finding was that FDs seemed more sure the euro would be of benefit to other companies, but not necessarily their own. While half the respondents said British companies in general would be at a disadvantage by staying out, only one-third agreed this was the case for their own company. Surprisingly, FDs at bigger companies were more positive about the benefits of staying out of the euro than were FDs at smaller companies (traditionally, larger companies are regarded as more ‘pro euro’ than smaller companies) and FDs from big companies were more likely to vote against joining in a referendum.

When asked what the euro had been like for their business activities abroad, 35% said the euro had been a good thing for their organisation, but 22% said it had not, 33% were neutral and 10% don’t know.

Corporate use of the euro is already widespread within the UK: 20% said they had customers in Britain who wanted to pay in euros, while a similar proportion said they had British suppliers who wanted to bill their customers in euros. Even if Britain doesn’t go into the euro, the euro has come to Britain.

FDs who were anxious for Britain to join EMU were concerned about exchange rate fluctuations making UK companies less competitive, uncertainty over costs and prices, and the prospect of eurozone companies preferring to deal with each other. Banking and hedging costs were also concerns, while one FD said that staying out the euro made it more difficult to be a pan-European company.

Those less enamoured with the single currency expressed doubts about a ‘one-size-fits-all’ interest rate policy, and typically thought we would have a more flexible labour force and lower taxes if we stayed out. Ultimately, fiscal policy would have to be centralised, said some, while the politics of the monetary union were unattractive to others. “The ERM was a failure for the UK, but it had a parachute to enable escape. The euro is every bit as dangerous, but has no escape mechanism,” said one FD.

Indecision and uncertainty were FDs’ main concerns about the government’s policy (Chancellor Gordon Brown’s announcement had not yet been made when the survey was conducted), with some FDs worrying that our entry into the euro would be executed for political reasons, not economic reasons.

One FD wrote: “It will tear each political party apart. It gutted the Tories, it now looks as if it’s driving a wedge through Labour.”

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