- The Washington Times - Tuesday, January 27, 2009

LONDON | Britons are clinging to their battered national currency, the pound sterling, even as their country follows numerous others around the world and sinks into recession.

As the British economy slides toward levels that threaten to emulate the Great Depression of the 1930s, the pound has slumped from more than $2 in July to barely more than $1.35 on Friday. That was the day the recession - defined as two consecutive quarters of falling economic growth - was officially declared.

By the time the markets had settled for the weekend, the pound teetered at less than $1.38, the level at which they closed Monday.

Little, if any, improvement is expected in the months ahead.

Still, the average Briton appears to revere the pound as a bulwark symbol of Britain’s independence from continental Europe and the euro.

Two public opinion polls support this view.

In a survey conducted by ICM Research for the British Broadcasting Corp., 71 percent of those interviewed said they would oppose any referendum for Britain to eliminate the pound in favor of the euro.

In another survey, only 24 percent of those questioned supported the euro. The survey was conducted for the Taxpayers Alliance, which campaigns for lower taxes and claims to have 18,000 members.

Many Britons think the European Union has taken a step too far with the euro. Turmoil within the euro zone has strengthened these views

Many analysts say Germany’s economy may have contracted more rapidly than Britain’s in the fourth quarter. Other EU members, such as Spain and Greece, face difficulties keeping within the union’s guidelines for government spending and inflation.

Britain, whose housing industry also is facing a deflationary spiral, needs its currency to depreciate to recover its competitiveness, said Brad W. Setser, a fellow for geoeconomics at the Council on Foreign Relations in New York.

“Britain needs the safety valve of pound depreciation,” Mr. Setser said. “This is the wrong time to think about entering the euro zone.”

British politicians of nearly every stripe appear to view the European currency as something of a poisoned chalice.

Prime Minister Gordon Brown and his Labor government are committed to replacing the pound with the euro someday, but British politics could put such a move a long way down the road.

Mr. Brown has become increasingly unpopular as the economy has sunk. An opinion poll by London’s Sunday Times earlier this month showed the main opposition Conservative Party 13 percentage points ahead of the government.

With Mr. Brown worried about defeat in the general election he must call by mid-2010, his 10 Downing St. office now insists that “we have no plans to join the euro.”

The outlook for the euro would be even bleaker if the Conservatives, led by David Cameron, form the next British government. After resolving internal squabbles over the issue, the Conservatives are now staunchly opposed to the European currency.

The Conservatives’ shadow foreign secretary, William Hague, said, “There are no circumstances in which the next Conservative government will propose joining the euro. … A Conservative government under David Cameron would have no ministers telling Brussels we would be better off without the pound and [we have] no goal of joining the euro one day.”

If the Conservatives win a five-year term of office in 2010, adoption of the European currency is likely a dead issue in Britain until at least 2015.

If Mr. Brown is victorious next year and lives up to Labor’s promise announced in its 2005 manifesto that the government will put the issue to a referendum, British voters almost certainly will deal it a crushing defeat.

Even the third-party Liberal Democrats, who could conceivably hold the balance of power in a hung Parliament after the general elections next year, have been forced to step back from their insistence that the euro is the road to a safe and secure financial future.

“The euro is no magic wand,” Liberal Democrat leader Nick Clegg now says.

The pro-euro campaign for Britain, after lying dormant for months, was given some surprising currency late last year when European Commission President Jose Manuel Barroso said in an interview on French radio that Britain was “closer than ever before” to adopting the European currency.

But Mr. Brown’s government swiftly denied Mr. Barroso’s statement and insisted that “our position hasn’t changed - we have no plans to join the euro.”

Meanwhile, the U.K. Independence Party, a force in the vanguard of the anti-euro cause, appeared bemused by Mr. Barroso’s remarks.

If Mr. Barroso wants to test the mood in Britain, U.K. Independence leader Nigel Farage told journalists at the time, “then he can call for a referendum on both the euro and the Lisbon Treaty so that the people of Britain can tell him where to go.”

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