Should Britain throw the pound into Europe's monetary pot? Thatcher must decide how far economic unification should go
When British Prime Minister Margaret Thatcher meets with French President Fran,cois Mitterrand here today, she will hear a French plea to get off the fence and get on with Europe. The French government wants Britain to throw the pound in with the franc and the deutsche mark in the European Monetary System's (EMS) exchange-rate mechanism.
One big reason: to make sure the austere bankers of Frankfurt don't monopolize economic policy as France lines up with West Germany in the Europe of the future.
``It is not desirable to have fixed exchange rates unless you can convince the Germans that they must share the responsibility,'' notes economist Pierre Jacquet, with the French Institute of International Relations.
The French want a somewhat more stimulative economic policy than the inflation-phobic Germans. On this point, Britain is likely to side with France more than Germany. But Mr. Jacquet notes that Germany, with its aging population, does not have the same reasons for growth as the French or the British.
If the Germans don't modify their attitude, he says, ``Britain shouldn't enter the EMS as it is now.''
Recent interviews with German economists indicated skepticism about Britain's role. One suggested that Britain sees Europe as a free-trade zone, nothing more. This would require little beyond stable prices.
But Jean Paul Tranthiet, a high-ranking official with the French government's Ministry of European Affairs, says he is convinced that London favors a united Europe. He points out that Britain conducts 60 to 70 percent of its trade within the Common Market. Although he concedes the British don't yet ``favor a monetary union, we will try to convince them.''
Monetary union is very important for the bullishly pro-Europe French. Getting Britain into the exchange-rate mechanism of the EMS is turning into a litmus test for them on just how far economic unification of Europe can go.
``The British attitude is one of our preoccupations,'' Mr. Tranthiet says.
But it is a tough decision for Mrs. Thatcher. Britain would be opting for Europe above its transatlantic and Commonwealth relations.
Of more immediate importance, however, Thatcher would be giving up a large measure of control over the British economy. In effect, she would be tying the pound to the mark, the dominant currency in the EMS. That would mean, says economist Michel Develle of Banque Paribas, a decrease in the rapid economic growth Britain is enjoying.
``Entry of the pound also could provoke instability in the EMS,'' Mr. Develle says. ``But the counterpoint of that could be that the European Currency Unit would get real strength.''
He is referring to the currency unit that many Europeans see as the precursor of the coins and paper money Europe might one day issue.
European monetary strength, as Develle sees it, would allow the franc-pound-mark bloc to compete against the yen bloc of East Asia and the dollar bloc of North America.
``Japan and the United States will see the significance of this situation,'' says Develle. ``So far, they haven't taken the idea of an integrated Europe completely seriously. This would be a very important move.''
At a minimum, says a white paper prepared by the Brussels-based European Community office, monetary stability ``is an essential precondition for the proper operation and development of the internal market.''
Develle notes, however, that despite the differing attitudes toward inflation, economic convergence in the European Community ``will have to be from the German model,'' meaning strict control of the money supply.
Thatcher will have to choose the moment when a dose of Germanic strictness will be tolerable in Britain. This requires tuning exchange rates so that they are OK for British exporters, preserve purchasing power for the British consumer, and are not inflationary. Britain has been doing a lot of exchange-rate tuning lately.
It leads Develle to believe that at 3 marks to a pound, ``I think Britain will be ready to integrate.''
If he is right, the moment for Thatcher to say yes to France and the rest of Europe might not be far off. It could be that much easier, he adds, if the Anglo-American alliance is deemphasized under the next US president.