Private interests and exchange rate politics: The case of British business

We use surveys of British businesses to test the relative influence of monetary and 'real' economic factors on private sector interests towards European monetary integration. We show that firms trading with the European Union have a preference for a fixed exchange rate (in both the European Monetary System and euro membership). On the other hand, firms not trading with the rest of the EU do not hold such preferences. In addition, firms with parent companies in other EU member states favour euro membership. However, contrary to conventional theories of political economy, firms trading more widely (that is, extra-European trade) also prefer euro membership, despite being less dependent on intra-EU trade. Moreover, in later surveys, exporting firms appear to prefer a strong pound, contrary to received wisdom.