<http://www.guardian.co.uk/business/story/0,3604,429512,00.html> Bankers slam UK euro policy Special report: economic and monetary union Larry Elliott in Davos Saturday January 27, 2001 The president of the Bundesbank, Ernst Welteke, raised the temperature yesterday in the debate over Britain's membership of the single currency, when he flatly rejected Labour's argument and said a single government in Europe would inevitably follow monetary union. Despite Labour's attempts to downplay the constitutional ramifications of adopting the euro, Mr Welteke said monetary union must be followed by more political cooperation and integration. "The single currency does not require a single government but it is my conviction that a single government will follow the single currency," he said at the World Economic Forum in Davos. Labour has insisted that membership of the single currency has no political implications but depends on whether the UK meets the five economic tests laid down by the chancellor, Gordon Brown, in October 1997. Faced with strong opposition in the UK to any moves that would involve the creation of a European government, Labour is hoping that any future referendum in Britain can be fought purely on economic grounds. However, Mr Welteke's comments reflect the growing conviction among the 12 nations that have signed up to the euro that Britain's hesitation over the project cannot be allowed to delay political steps that would help the single currency become more successful and enjoy greater popular support. His views were backed by Otmar Issing, chief economist of the European Central Bank, who said he had initially been sceptical about starting monetary union before political union, but for the time being it appeared possible to have a single currency without changing political structures. However, he added that in the long run, deeper political union was needed. "We have to search for the proper political environment so that this institutional environment can survive in the long run. It [the new political environment] will be nothing of the kind that we have seen before." Daniel Bouton, chairman of the French bank, Société Générale, said there was a need to place a maximum of regulatory systems at a European level, and warned that the postponement of a decision on EU governance while enlargement went ahead was "a dangerous price to pay". Mr Issing and Mr Welteke also played down speculation that they would follow the lead of the US Federal Reserve and cut interest rates sharply, arguing that Europe was set to enjoy healthy growth this year. Mr Welteke said he was confident that Germany would grow by 2.75% this year, with consumer spending boosted by income tax cuts and gradually falling unemployment. "Upside inflation risks have clearly lessened of late. We are seeing an appreciation of the euro, we are seeing the oil price falling. The economy is running somewhat more moderately, thus the price risks have lessened. "But this does not yet signal that we now have to go in a different direction with monetary policy." Mr Issing said euro zone inflation was likely to come down, and that the euro's exchange rate was on course for long term gains. "Markets are confident we will succeed in keeping inflation below the 2% benchmark we have identified as being compatible with medium term price stability."
