05 Jan, 2009

Euro Turns 10 As Sterling Stalls

As currencies go, the euro is still in short trousers. But where once it was dwarfed by the powerful pound, now the two currencies are rubbing shoulders. Ten years on since its birth, the euro is the strongest it has ever been. A year ago, a pound would have bought you around €1.50. Pop along now and you will get just under 98 cents. Forget parity – Sterling is already worth less than the euro in many places. Quite simply the pound is getting rather puny. “Fundamentally the pound has changed,” says financial commentator Justin Urquhart Stewart. “We used to have things called reserve currencies – the global reserve currencies that people would trust internationally. Now we have three: the yen; the dollar; and the euro. No longer sterling I’m afraid.” It’s been a record breaking fall. In just the last month the pound has fallen in value by 13{6060b2de664e4eaa3e7b7e86961ce2c4bbd7a29b6c1097abf8257a4e5b07383e} against the euro. Further interest rate cuts in the UK could push it down it even further. The more foreign investors dump sterling in search of better returns elsewhere, the further the exchange rate falls. A few years ago it was all very different. Back in 1999, a euro would cost you 71 pence. By March 2000, it had slid to 60p – only to plateau through the early part of this decade at around 69p. The situation is likely to re-ignite the debate over whether Britain should join the single currency. Some, including European Commission President Jose Manuel Barosso, feel it is more likely now than ever before. Mr Urquhart Stewart disagrees. “I think it’s unlikely we’re going to join at the moment,” he said. “If nothing else because many European members don’t want the pound in anyway. We’d be far too disruptive. “They’ve only just managed to sort out the schoolboys that are the members of the Euro zone without having a lager lout coming in from across the English Channel.” While the pound’s slide makes imports from the Euro zone more expensive – it also makes exports much better value. And some commentators believe the slide could actually work in our favour. If a country’s exchange rate reflects its economic prospects, ours are pretty bad. And with forecasts that Britain is heading into recession faster than first thought, the question is how much further the sterling slide will go.

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