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ECB chief rules out low euro entry for pound

LONDON: European Central Bank President Wim Duisenberg ruled out on Sunday any chance of a competitive devaluation for the pound if Britain signs up to the euro.

He said in an interview with The Observer weekly newspaper that the pound, currently trading at close to an equivalent level of 3.20 marks, would likely enter the euro at a similarly high level.

"It (Britain) would have to comply with all the convergence criteria that have been applied to all the founding father countries of the euro area " he told the paper.

"And the pound would demonstrably have had to have been stable vis-a-vis the euro; it would not have depreciated in the two years ahead of its entry."

Duisenberg said this was the price Britain would pay for staying out of Europe's fledgling single currency, which kicked off in 11 of the European Union's 15 member countries just over a year ago.

The pound surged in value against major European currencies in autumn 1996 and traded at around the 3.0 mark level until a renewed surge in recent months, prompted at least in part by rising British interest rates.

The British government, which has ruled out any policy to try to weaken the pound, faces the dilemma that the pound, under euro entry rules, would have to be stable against the new currency for two years prior to entry.

While many economists say that the "correct" level for the pound is somewhere closer to 2.70 marks, British exports have been growing strongly recently because of buoyant world demand.

Duisenberg, who said he hoped Britain would join the euro, recognised Britain had a different financial structure than many of its European neighbours, in particular one in which short- term interest rates play a larger role than in Europe.

He pointed out that Ireland had joined the euro and slashed interest rates but without any resultant takeoff in inflation.

"That may be an indication that the behavioural relations of consumers, of investors, of government may have changed through the structural shock that has taken place by participating in the single currency area," he said.

Duisenberg said he did not think that if it joined the euro Britain would necessarily have to raise taxes or cut spending to offset lower interest rates in the euro area.

Interest rates in Britain are currently at 5.75 percent - almost double the rate of the euro zone.

On the euro, which has weakened against the dollar since it was launched, Duisenberg denied it was creaking at the seams. "We have delivered what we promised; that is more or less price stability. Europe would not have had such a low average interest rate level without the euro," he said.-Reuters