Iraq attack sidelines the euro

Anthony Hilton12 April 2012

BUSINESS leaders in favour of early British membership of the European single currency are looking rather glum. Until a couple of weeks ago, they were fairly convinced that Prime Minister Tony Blair was prepared to have the Treasury publish its analysis of the issues next year, after which he would move on swiftly to a referendum on the issue.

The question of whether Britain joins the US in a war against Iraq has changed all that, however. It is at the top of the Prime Minister's in-tray and he is going to use up a huge amount of political capital in persuading the public to support his pro-American policy. He may or may not succeed. Either way, the effort is going to be exhausting. At the end of it there will be no stomach to go back into battle for the euro.

The unforeseen side effect of the Iraqi crisis has therefore been to kick the euro into touch. No one in Government will admit this, of course, and will continue to pretend everything is on track. Pro-euro businessmen will not like it either and Blair's allies in the capitals of continental Europe will be furious.

But none of this will make a blind bit of difference. The euro is now off the agenda for this Parliament.

Power play

BRITISH Energy's warning that it is about to go bust does have an amusing side. John Major, the most vilified Tory Prime Minister for a generation, delivered two significant privatisations. One was the railway network, and we all know what happened to that. The other was the nuclear power industry in the guise of British Energy. Now it too has gone pearshaped.

The collapse of British Energy shows what happens when you do not have joined-up thinking in Government. It was deemed to be a good thing to make the wholesale energy market as competitive as possible so that raw electricity would be cheap. To this end an auctioning system was created which drove wholesale electricity prices massively lower.

That might be seen as a good thing were it not for the fact that most of the wholesalers were also retailers and continued to charge their customers prices at which they could make a profit. Those who were caught were those with no retail customers - notably British Energy.

The outcome was entirely predictable but is does not make the Government's dilemma any easier. Does it bail out the company with an injection of taxpayers' money? Does it fudge the issue by finding extra work for the company by giving it 'sweetheart' contracts to manage the assets of British Nuclear Fuels? Or does it let the company go into receivership, and see who might buy it?

The answer is pretty obvious but it is a tough one for a politician. The moment anything nuclear gets into trouble the glow-in-th-dark brigade has a field day and the cry of safety rings from the rafters. Government can then be expected to panic and pump in the money. This, presumably, is what the board is counting on and no doubt hopes that a suitably softene dup minister will find a formula for what is effectively a State bailout for a lame duck.

A robust Government would note, however, that nuclear businesses have regularly gone bust in America but, at the right price, have found buyers. So it should let the company formally go bust. Let the receiver sell the assets to anyone willing to buy them and let a new business rise from the ashes of the old. Only if that fails to happen should the Government step in to make sure that a business which supplies a quarter of British electricity keeps pumping the juice.

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