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THE WINE TRADE AND THE EURO: FRIENDS OR FOES?

For it or against it, in or out, the euro is now a reality - even if half of us in the UK don't know it yet (at least so says a recent EuroBarometer survey). As the common currency of the 12 countries, 10 million companies and 300 million people in the Eurozone, it already affects each and every one of us. And it will do so more and more. Harpers asked four experts to debate whether the wine trade and the euro are friends or foes. But as quickly became apparent, in a discussion encompassing William the Conqueror, swivel-eyed little Englanders', and lamb on the bone, it's not as simple as that. Two of the speakers were from the wine world - Jasper Morris MW, MD of Morris & Verdin (who was for the euro), and Tom Stevenson, author and wine writer (who was against, to put it mildly). The other two contributed valuable views from outside - George Kessler, CEO of Kessler's International (for), and William Kendall, CEO of Whole Earth Foods (against). Chairing the debate, Tim Atkin MW, Harpers' editorial director, reminded everybody that by this time next year, we may all have voted for real. When he asked the audience before the debate whether they were for or against, only seven were against. Would anybody be swayed? George Kessler, the first speaker, cited the dire predictions of anti-Europeans' who said that the euro wouldn't ever happen'. He also gently rebuked those who still think that it has nothing to do with them. How many software writers does it take to change a lightbulb?' he asked. None. They can't. They say it's a hardware problem.' Arguing that staying out of the euro would leave the UK at a unique competitive disadvantage', and that going it alone isn't an option', he advanced several statistics to support his view. On the employment front, he claimed that 3.5 million UK jobs depend on EU trade, and that moving to NAFTA (the North American Free Trade Association) doesn't make any sense - geographically, economically or politically'. The EU is two days away, the US two weeks. The EU accounts for 50% of UK trade, the US 16%. And as a former US ambassador to the UK openly stated, If the UK voice is less influential in Paris or Bonn, it will be less influential in Washington as well.' Kessler said it appeared that the UK growth rate is already falling behind that of the rest of the EU, as it did before UK entry in 1973. He said that the UK share of inward investment in the EU, which had been running at 28%, also seems to be slipping, some 3-4% since the start of the year. Price convergence is definitely happening', as a result of greater price transparency. According to a 3i survey, more than two-thirds of European companies now charge identical prices. Amsterdam, Frankfurt and Paris have prices less than 2% apart, while those in London are 15-16% higher. Currency volatility is a killer' for UK companies, which are not able to concentrate on productivity or look to the longer term. Some 750,000 UK companies currently trade with the EU, and the hedging and transaction costs necessitated by sterling now total 4.5 billion a year. Kessler concluded that the UK paid a high price by staying out of the EU, and will pay an even higher price by staying out of the euro now. William Kendall, who describes himself as an enthusiastic European', and holds an MBA from the highly rated French business school INSEAD, was swallowing none of this. Originally in favour of the euro (because he was anxious not to be seen as a swivel-eyed little Englander'), he now needs convincing that this huge risk is worth taking, when the last experiment went so disastrously wrong'. That experiment was UK entry into the European Exchange Rate Mechanism (ERM) which, he alleged, had caused 100,000 UK companies to go bust and unemployment to double. Kendall insisted that all attempts to create a common currency had failed, and that economic union would not work without political union. The UK economy, moreover, is too out of kilter' with that of other EU countries for a common currency to work. Abandoning control of interest rates would cause inflation, now at its lowest rate for 25 years, to rise. And common rates of tax, which many sceptics think would follow, would discourage inward investment in the UK. Predictions that this investment would already be drying up have proved unfounded. Addressing many of the alleged benefits of the euro, Kendall dismissed most of them as insignificant. He accepted that the currency might be less volatile, but emphasised that there would still be volatility in terms of the euro and the dollar. The UK needs to focus on global trade, and a Fortress Europe is not in our interests'. Although adopting the euro would cut hedging and transaction costs, they average only 0.1-0.5%. Even accepting an annual total of 4.5 billion, converting to the euro would have cost the UK 36 billion - enough to run the NHS for a year. As for transparency, the euro will not contribute more to this than the Internet is already doing. Kendall cautioned that the euro would be the biggest irreversible change the UK economy has ever had thrown at it'. He opposed the suggestion that the UK is in danger of missing the train. We shouldn't jump on before we know where it's going.' Jasper Morris MW announced that, on balance', he was in favour' of the euro, but that he wasn't a tub-thumper'. (He said he would thump his tub about other things, but not this.) He had, however, been in France at New Year, and been amazed by how smoothly it all happened'. He had also found it convenient' not having to change currency when travelling. On a more serious note, he challenged Kendall's argument that the UK's bad experience in the ERM was a reason for staying out of the euro now: they are completely different things'. And although many businesses collapsed in 1992, no business goes bust for only one reason'. For Morris, the UK faces three choices. It can be independent, it can move closer to the EU, or it can move closer to the US. For him, the second option made far more sense than the third, as we have always been part of Europe'. Addressing the two stock responses from the man on the Clapham omnibus' (supposed to be against the euro), Morris argued that neither the loss of sterling' nor the loss of sovereignty' is really relevant. Sterling had already been lost at decimalisation in 1970, when there were no longer as many pence to the shilling as there are bottles in a case'. And as for sovereignty, this had been lost as long ago as 1066, when William the Conqueror was duke of Normandy first, and king of England second. Ever since then, most English sovereigns have not been English at all. Morris concluded that it is crucial to adopt such an historical perspective, and to look to the benefits of the euro over the long term. If we go in, we will take it in our stride'. Tom Stevenson couldn't have disagreed more (not only as somebody with a shorter stride than Morris, the tallest as well as the youngest MW of his day). Stevenson made clear the great importance of the issue, as well as the passion surrounding it, by declaring, Quite frankly, I don't give a toss whether the euro benefits the UK wine trade or not. It's a question of political union, of sovereignty. It's impossible to argue for the euro and against political union. And I don't want to be part of a federal superstate.' He asserted that the UK and the Continent have different legal systems and different mindsets'. On the Continent they agree things then ignore them. They do whatever they want to do. Any French chef told he couldn't serve lamb on the bone wouldn't care.' Announcing that he didn't belong to any political party, and denying that he was a paranoid Eurosceptic, he had come armed with a copy of the Maastricht Treaty (which, on a requested show of hands, only one other person in the room had read). He argued that this was the blueprint for a European superstate, and that the euro was an essential step towards it. Moving to the economic issues, he attempted to refute three of the arguments Kessler had used in favour. As for currency volatility, he stressed that the euro has been far more volatile than the pound, depreciating 14.3% since the start of the year. Had the UK also adopted the common currency, this depreciation would have cost it a further 36 billion. As for a sterling tax' (hedging and transaction costs), he agreed with Kendall that this was insignificant in the overall scheme of things. And to the suggestion that the UK was too small to stay outside the Eurozone, All I can say to that,' he said, is God help everybody else. The UK is the fourth largest economy in the world.' He concluded with a radical suggestion: the UK could continue to benefit economically, but not be controlled politically, by leaving the EU and returning to EFTA (the European Free Trade Association). After contributions from the floor, as opposed to those from the podium, Atkin again asked the audience to declare for or against. It came as small surprise that nobody had changed his or her mind. At the same time, nobody could have left thinking that the euro did not matter, or that it did not merit much further thought, from both a personal and professional point of view. The scary thing, as Atkin had warned at the beginning (citing Hamish McCrae on the subject), is that like most really important questions, nobody will know the answer until long after the event'.

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