Premium Essay

The Euro and the Uk

In: Business and Management

Submitted By edelas
Words 3967
Pages 16

On May 14th 1947, in the Royal Albert Hall, Sir Winston Churchill said, "We are ourselves content, in the first instance, to present the idea of United Europe, in which our country will play a decisive part, as a moral, cultural and spiritual conception to which all can rally without being disturbed by divergences about structure. It is for the responsible statesmen, who have the conduct of affairs in their hands and the power of executive action, to shape and fashion the structure. It is for us to lay the atmosphere and give the driving impulsion."

Ironically, today, only Britain could possibly rival Denmark for anti-EMU (European Monetary Union) feelings. In 1992, after tough negotiations, Great Britain signed the Treaty of Maastricht but with a special demand: an opt-in option. This meant that Britain could join the EMU whenever it decided to do so. Ever since the election of Prime Minister Tony Blair and his Labour Party, the government argues that the country should join the EMU when and if the economic conditions are right. Denmark had asked in the Treaty of Maastricht for an opt-in option, however, on September 28th, 53% of the Danes decided to keep the krone.

Economically, the UK would find more advantages than not in joining the Euro zone, as shows the following table[1]:

|Advantages of entry |Disadvantages of entry |
|No cost or uncertainty of changing currencies |Less ability to offset local shocks to real demand |
|Lower interest rates |Possible deflationary bias at the beginning |
|Fewer output fluctuations |...

Similar Documents

Premium Essay

Evaluate the Case for the Uk Joining the Euro

...the case for the UK joining the Euro There has been much dispute over whether the Euro has been a success and as to whether Britain should drop the pound and become the latest country to join the Euro. There are many advantages for and against the case for the UK joining the Euro which this essay will evaluate. One of the key advantages that adopting the Euro would bring to the UK is the lower costs of exchange associated with a single currency. When Britain trades with Europe they must pay the exporter in Euro’s and to obtain the currency they must pay a charge to banks. This is a significant cost which is usually passed on to consumers through higher prices. This is a very significant benefit considering for the EU as a whole the transaction costs involved with trading between each other are estimated at 0.4% of EU GDP. Associated with this is also price transparency; using a single currency makes it much easier for consumers and business to compare relative prices between prices. This also leads to improvements in allocative efficiency which in turn increases consumer welfare, however, when compared to other factors this gives relatively small financial gains for Britain. Joining the Euro would also increase Foreign Direct Investment. Many argue that the high amount of FDI that Britain currently receives could be at threat in the long-term if the UK doesn’t adopt the Euro. By removing a currency, which is a barrier to trade, membership of the Euro could also......

Words: 682 - Pages: 3

Premium Essay

An Evaluation of the Advantages and Disadvantages of Adopting the Euro. a Case Study of the Uk

...disadvantages of adopting the Euro. A case study of The UK I. Introduction According to European Commission (2011a), a new common currency in Europe was announced on the first day of January 1999. At that time, there were eleven European countries decided to join the Euro and the Euro was introduced instead of their own currencies. The Euro has been adopted as a main currency of the country members, including Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxemburg, the Netherlands, Portugal and Spain. In order to be accepted to use the Euro, these countries had to agree with the conditions called “convergence criteria” about the price and exchange-rate stability, long-term interest rates, total government debt, government budget deficits, and central bank independence. These aspects will be discussed specifically in this essay. In the early stages of announcing and using the Euro, four members of the EU still remained separate from the Euro, namely Denmark, Great Britain, Greece, and Sweden. Later, in 2000, Greece changed its decision to accomplish the agreement. In 2001, it started adopting the Euro. At the present time, there are 17 out of 27 EU countries using the Euro as an official currency, which makes it become one of the most important currencies in the world. In the future, apart from Denmark and Britain, all other members of the EU will adopt the Euro. It should be known that only Latvia and Romania have a target date for joining the Euro in......

Words: 2619 - Pages: 11

Premium Essay

A Study of the Benefits and Costs Which Might Result for Uk-Based Firms Should the Uk Adopt the Euro

...A Study of the Benefits and Costs which Might Result for UK-based Firms Should the UK Adopt the Euro Name: Louise Tibagalika Module: The Global Business Environment Tutor: Phil Johnson Submission Date: 10th February 2014 Academic Integrity Statement: I have read and understood the Academic Integrity guidelines for Kaplan Open Learning and the University Of Essex, and declare that this assignment conforms to all of the rules and regulations contained therein. Please note: the guidelines can be found in the Student Handbook (see section 6.4). Introduction The euro is the single currency established in 1999, currently shared by 18 countries of the European Union’s Member States (, 2014). Due to the number of advantages such as the stimulation of trade and disadvantages such as economic instability, the decision for the UK to adopt the euro is a big economic and political debate at present which will affect businesses and the public in many ways. The following report will look at the advantages and disadvantages for businesses and answer the question as to whether the UK government should proceed with the decision. Objectives * Assess the benefits of the UK adopting the EURO * Assess the drawbacks associated with the UK adopting the EURO * How businesses can utilise these benefits and survive in the international market * Look at the political, economic, social and environmental factors * Provide workplace and personal......

Words: 2433 - Pages: 10

Premium Essay

Balance of Advantages of the Uk Joining the Emu and/or Using the Euro as a Functional Currency

...advantages of the UK joining the EMU and/or using the Euro as a functional currency. Contents Contents 2 1. EXECUTIVE SUMMARY 3 2. INTRODUCTION 3 2.1. HISTORY OF INSOMNIA PLC 3 2.2. SCOPE OF BUSINESS 3 2.3. CURRENT EXPOSURES 4 2.3.1. TRANSACTION EXPOSURE 4 2.3.2. ECONOMIC EXPOSURE 4 2.3.3. TRANSLATION EXPOSURE 4 2.4. HEDGING 5 3. EFFECTS OF UK JOINING EMU ON INSOMNIA PLC 5 3.1. COST SAVINGS ON CROSS-BORDER TRANSACTIONS 5 3.2. STABILITY OF PRICES 6 3.3. PRICE TRANSPARENCY 6 3.4. OTHER EFFECTS 6 4. USING EURO AS A FUNCTIONAL CURRENCY OF INSOMNIA PLC 7 5. CONCLUSION 8 6. BIBLIOGRAPHY 9 1. EXECUTIVE SUMMARY It has been found that UK joining EMU as well as accepting the Euro as a functional currency will bring more benefits to Insomnia plc than staying outside of the Economic and Monetary Union or continuing using Pound Sterling as a functional currency. Both of the choices will decrease the currency exchange rate fluctuation risk which was found to be the most significant to the company. Analysis were based mainly on academic articles, European Central Bank (ECB) publishing’s, and International Accounting Standards (IASs). 2. INTRODUCTION “The Economic and Monetary Union is an agreement between participating European nations to share a single currency, the Euro and......

Words: 3577 - Pages: 15

Premium Essay

To What Extent Do You Agree with the View That the Uk Economy Would Benefit If the Euro Were to Be Adopted at Some Point in the Future

...Back in 1992, the UK Conservative government was forced to withdraw the Pound from the European Exchange Rate Mechanism (ERM) after they were unable to keep it above its agreed lower limit. However now comes the question of whether or not that was the correct reaction to Black Wednesday since 55% of UK’s exports are already going to Eurozone countries, European tourists can bring more spending power into the UK as mentioned in extract D and in a time of recession, strength seems to come in numbers. Hence the UK could benefit from an adoption of the Euro. The most controversial issue is that the European Central Bank (ECB) will take over monetary policy if the UK were to join the 17-countries strong zone. The problem with this is the ‘one size doesn’t fit all’ dilemma that would make British interest rates the same as the Eurozone, by increasing it to ensure a low inflation rate, which is a priority in the ECB. Arguably, in the UK, this is at the expense of promoting economic growth and spending since the Bank of England tolerates a higher rate of inflation of 2% with a margin of ¬¬+- 1% because their priority is to avoid a double-dip recession. The interest rates in interest would cause a decrease in the marginal propensity to consume as well as increase loan debts, shown in the diagram with an inward shift in AD, as consumption and investment falls. Although there is also a decrease in Imports, it is marginally smaller than consumption (that accounts for 65% of Aggregate......

Words: 796 - Pages: 4

Free Essay

Discuss and Analysis the Movements in Value of the Euro Against the Pound Since January 2008

...analysis the movements in value of the Euro against the pound since January 2008 Introduction The value of Euro varies with time by a floating exchange rate against British Pound (GBP). Hence, the exchange rate influenced the value of Euro against GBP and law of one price is assumed. Theories such as the relative Purchasing Power Parity and the fisher effect illustrate the impact of the inflation and the interest rate between two countries on the value of the currency. The asset market model is also another instrument to analyse the movement of a currency. The constraints of using these models are those theories all assumed perfect efficiency of market and the increasing role of global capital flows is ignored. Therefore they are relatively useful to predict the rates in the future which are demonstrated in part two. The following analysis is based on economic factors such as the economic status of the Euro area and the United Kingdom (UK) and the decision made by the Bank of England (BoE) and the European Central Bank (ECB). The investor confidence (Market Psychology) is also below. They affect the value of euro significant, as they vary the supply of and demand for Euro. The value of Euro against British Pound (GBP) increased throughout the three years. The Euro rose from 0.7416 to 0.8507 over the three decades. Euro was 0.7416 at the beginning of 2008, which was its weakest point in these three years. Moreover, the strongest point of Euro relative to GBP is 0.9785 on......

Words: 2122 - Pages: 9

Premium Essay


...European union and the Eurozone Yash Sohal This BBC article explains that under Tony Blair’s labour government, the toughest decision to be made was if the UK should join the European single currency. Many businesses owners are against the move to the euro. The article outlines three different aspects facing the euro debate, the first being the economy. It identifies that how the euro would affect the economy is a central debate. The article outlines the positive and negative effects the change to the euro would have on the UK economy. One positive outcome cold be large multi-nationals will invest in Britain if it eventually joins the euro. One negative outcome would be that the European central bank would find it very difficult to set the right interest rate after shocks the economy, such as the terrorist attacks of September 11th. The second aspect is political. It states that British politicians are hugely divided in the euro debate and this is creating tensions in the government. It states that the UK may be left out on important political decisions in the EU, especially when it expands to 25 members. The third aspect of the debate is sovereignty. The article states that if the UK decides to go with the euro it is loosing its sovereignty. The UK looses its right to control its own affairs. EU member states: 1 Austria 2 Belgium 3 Bulgaria 4 Croatia 4 Cyprus 5 Czech......

Words: 1848 - Pages: 8

Premium Essay

“the Decision by the British Government Not to Join the European Single Currency (the Euro) in 2002 Was a Good Decision.” Evaluate This Statement (20 Marks)

...counties of the European Union that have adopted the euro. This means that it is the currency used by the majority of countries within the EU. Firstly, I believe the decision by the British Government not to join the European Single Currency was a good decision because joining the Euro poses a variety of threats and uncertainties to the UK. I think that the UK should have control over its own economy to help benefit and most importantly protect its individuals and businesses. My main argument for this is that the UK housing market is one of the core markets in the UK that provides a huge turnover for the economy and can impact it with the slightest change. The UK’s economy is very sensitive to the interest rates and this means that small change in the interest rates can impact a large number of individual and businesses mortgages as they have high variable rates. Basically, a small increase in interest rates has a large impact on consumer spending and therefore if the UK’s interest rates were to be decided by the ECB (European Central Bank) this could heavily damage the UK economy. There is no devaluation., this means that the euro cannot become devalued if the currency becomes uncompetitive and this has been proved by significant problems such as Spain, Italy and Greece who’s all economies had a catastrophic crash. This is has been shown in large current account deficits in the southern EU countries. In contrast to the UK, it has being able to devalue as it has restored......

Words: 548 - Pages: 3

Premium Essay


...The Euro is an individual currency that has theoretically been in operation in eleven countries that are members of the European Union. It was introduced in theory in January in the year 1999. The plans for arranging a single currency solidified on 1st January, 2002, when 12 EU member countries stopped using their own individual currencies and declared the Euro as their only currency. The EU has offered to let Britain hold a public vote on whether Britain should use the Euro as part of its economic involvement in the EU. Ever since the Euro has been introduced, it’s performance has been poor when it is compared with the values of the British Pound and the American Dollar. The Euro is a single currency arrangement that came into theoretical operation between 11 members of the European Union in January 1999. On January 1st 2002, 12 EU members got rid of their own currencies and introduced the Euro as their sole currency. If Britain joins the Euro, it will likely be in 2003.  The government has offered the British public a referendum on Britain's entry into it though some ministers have clouded the issue as to whether Britain's entry (or not) will be a political or an economic decision. Jack Straw, Home Secretary, has stated that a decision will almost certainly be a political one whereas the Chancellor, Gordon Brown, has stated that the 'Five Tests' will determine whether we join the Euro - i.e., any decision will be an economic one. The Euro’s record since its introduction...

Words: 1942 - Pages: 8

Premium Essay

Why the European Monetary Union Is so Controversial

...not part of the EMU and its reasons. Economic union is a common market that removes restrictions on trade between countries. The currency is the same and a central authority controls fiscal policies. It has a single currency and monetary policy. The objective of this stage is that members actually are formed as one nation and its features are a common fiscal common currency, harmonized tax rates, the pooling of foreign exchange reserves, and monetary policy. (Cerdeira, 2009) The EMU is a major step in the integration of the economy of the European Union. It involves the coordination of economic and fiscal policy of the same coin policies, some countries took the next step to the next stage and adopted the euro as its currency, and these countries are part of the euro area. (EC, 2014) " One Market, One Currency " is what the European Commission defined as a geographical area where the economy is a single currency and where risks can be managed and has flexibility among country. This would make cuts of a country being adversely affected by an external shock, but the EU was having more social and employment laws that reduce market flexibility. (Heathcoat- Amory, 2012) According Mundelll (1961), there are three conditions that countries need for a successful common currency to be beneficial: first external shock can not have that can you hit individual countries that are part of the EMU, the second condition is...

Words: 1912 - Pages: 8

Premium Essay

International Business choice from the list of twenty currencies provided for 6 weeks of trading which starts from 14th of March to 20th April 2012. The three currencies that I have chosen to trade against US dollar includes Euro, Japanese Yen and Pound Sterling. The reason I chose Japanese yen to trade in is due to the drop in Asian stocks that signals the global economic recovery is slowing down. When the global economic recovery is slowing down, investors and traders will option for safer assets and currency (Associated Source, 2012). Throughout the years, yen is stable and it is bought by investors who wants to reduce currency risk. Moreover, there has been an appreciation of euro against dollar due to the news that European Central Bank announcement that it will keep its benchmark interest rate at 1% and it is raising the inflation projection. Moreover, the private bondholders are expected to agree to Greek debt swaps that should keep the country from a hard default. Another reason for the selection of euro is the latest decision by the Bank of England not to increase the bond purchases as bond purchases means outflow of money that leads to trade deficit and depreciation of Euro (, 2012). Furthermore, the reason I chose Great Britain pound was due to the appreciation of UK pound against the US dollar based on the latest interest rate decision by the Bank of England to keep it the same as well as to keep its debt-purchase program on hold for the time being......

Words: 4106 - Pages: 17

Premium Essay

Impacts of the Financial Crisis on the Eurozone

...called euro crisis of the Euro area, is a series of events that have affected negatively from the beginning of 2010 to the 16 European Union member states that make up the Eurozone, that have adopted a single currency and interweave a multinational monetary union within the EU. During this period the states of the Eurozone have been suffering a crisis of confidence without precedent, with speculative attacks on government bonds of various members, turbulent financial and stock markets and a falling exchange value of the single currency, in a context of uncertainty and difficulty to reach a collective agreement that still persists. In this paper, I will discuss some of the impacts that the crisis had over the Eurozone countries. In the last 6 months, the Euro had depreciated around 6 percent, making the exchange rate $1.38/€. This depreciation has caused an improvement in the European exports and a decrease in price for the imports in petroleum. The Euro/Dollar exchange rate touched a minimum on June 2010, when the rate is $1.19/€, and it touched a maximum on May 2011, when the rate was $1.48/€. According to an article from the Financial Times, “the first beneficiaries of a weaker euro are the countries of southern Europe whose difficulties have been putting the future of monetary union in doubt. Greece has been the focus, but Spain, Portugal and Italy also face a sharp loss of competitiveness”. Greece is the country that will benefit more from the depreciation of the Euro,......

Words: 1499 - Pages: 6

Premium Essay

Why the United Kingdom ‘’Opted Out’’ of the Emu

...responsibility to deliver more growth and jobs’’. Launched at the Hanover Summit in June 1988, chaired by the President of the European Commission, Jacques Delors, the EMU has started off as an encouragement of practical and realistic way of achieving an even more united Europe with a single currency as one of its main targets. In the rather positive view of the European Union, the EMU is said to mutually reinforce the national policies of member countries resulting in ‘’more growth, more jobs and a higher level of social welfare for all’’ (Europa, 2008). However, several countries have chosen to opt out of the EMU, notably the United Kingdom of which is going to be the key note of this essay. It is important to look into the reasons for which the UK has decided to opt out of the EMU and evaluate the results of that decision. Why do European countries choose to join the EMU? A question that must be asked is what are the political and economic factors behind the positions taken by different countries with respect to EMU? ‘’Main motivation behind EMU is political… monetary union is seen as highly desirable by those who want Europe to become more closely integrated politically’’...

Words: 3011 - Pages: 13

Free Essay

Business Resources

...variances are achieved when the actual performance is worse than the expected results, or making a loss in their estimation of finance. * Looking at the data the ‘UK summer’ package budget was £150,000 however the actual was £89,000 so the variance is £61,000 which means the company didn’t sell the packages that they wanted to sell but they sold under their budget that means it’s adverse as it’s not reaching to its budget. According to the data provided it also shows that summer in the UK was particularly wet compared to both Europe and USA. This explains that why people didn’t spend on the UK summer package as the weather was not good they might have planned to go somewhere else than coming to UK. * Euro summer package’s budget was £250,000 however the actual was £312,000 which means that it’s favourable as they have sold more packages then the budget required and the variance was £62,000 which is the profit made by Euro summer. There are many reasons that; it might have been favourable because looking at the data, it provides information saying that the exchange rate of £ to US$ climbed to nearly £1:$2 from £1:$1.25 was strong against the euro. This shows that as the Euro rate has increased some people can’t afford to pay large amount of money to go to the holidays so they don’t bother getting the package. * Euro Ski budget was also favourable as their budget was £350,000 and...

Words: 630 - Pages: 3

Premium Essay

Exam Economics Unit 6 Mark Scheme

...Specimen: 1)a) Examine the possible factors which may have led to a change on the value of the pound sterling against the Euro in recent years b) Evaluate the likely economic effects of a significant fall in the value of sterling against the Euro. 2)a) Examine the effect of the Common Agricultural Policy on the world trade in agricultural goods. b) Evaluate the implications of a significant reduction in barriers to the trade and services for the global economy. 3)a) In 2002 the unemployment rates in Spain, France and Italy were significantly higher than in the UK. Examine the factors which might explain why the UK's unemployment rate was lower in these countries. b) To what extent might the pursuit of full employment conflict with other macroeconomic objectives? ------------------------------------------------- Exemplar: 1)a) 'The competitiveness of the Uk's manufacturing sector has declined in recent years'. Discuss the factors which may have affected the international competitiveness of UK goods. b) Evaluate the methods by which the UK's international competitiveness could be increased. 2)'Trading blocs are becoming increasingly important to the world economy' a) Discuss the benefits to a country belonging to a trading bloc. b) To what extent might the policies of the WTO conflict to those of trading blocs? ------------------------------------------------- June 02 1a) Examine the factors which have led to an increase in interdependence between...

Words: 1983 - Pages: 8