BRUSSELS – The European Union’s core countries these days, besides the original six founders, are the 15 member states that make up the European Monetary Union. They have converging economies and coordinated monetary and fiscal policies. The big outsider is the United Kingdom.
British EMU membership remains very desirable. If the EU is to progress beyond the limits of a common economic and monetary policy and develop a defense and security policy along with a common foreign policy, the UK must be on board. Exchange-rate fluctuations between sterling and the euro disturb market forces among member states, and at times even have a negative impact in London. In the long run, the UK risks serious isolation if the euro zone starts to exert even greater power.
But other European countries must also understand British arguments in favor of the UK maintaining its own currency, given London’s importance as an international financial center as well as its privileged relations with more than 50 Commonwealth countries. The euro zone should therefore offer the UK an honorable compromise in which Britain would be allowed to become a full member of the EMU and take a seat in all of its institutions like the European Central Bank and the ministerial Eurogroup, while also being able to keep the pound in its relations with third countries.
The euro would, however, have to be accepted as legal tender in the UK, alongside the pound, and in the commonwealth countries, and this would demand close cooperation between the Bank of England and the ECB. Such a compromise would increase the EMU’s weight both inside and outside Europe.