¶ … Euro had a positive effect upon its members?
The euro has been the currency of the European Monetary Union (EMU) since January 1, 1999 (Auswartiges Amt, 2004). The euro was introduced slowly for member states. It has been a deposit currency since January 1999 and notes and coins have been in circulation since January 2002. Since March 2002 most European countries have exclusively used euro and cent as their currency.
The euro has become a new global currency as a transaction currency for trade and a reserve currency alongside the dollar (Auswartiges Amt, 2004). Thus, its benefits are vast, opening new doors for the euro zone representing a population of nearly 300 million, about 20% of global output and a 16.6% share of world trade. According to estimates by the IMF (International Monetary Fund) and the OECD (Organization for Economic Cooperation and Development) the euro is more than just the sum of its parts. Europe's voice in the further development of the world trade and finance system has been increased considerably by the single currency.
However, not all countries in Europe have joined the single currency to date. Along with Sweden and Denmark, the UK elected not to join. The UK negotiated an opt-out of joining the euro when it signed the Maastricht Treaty. The current Labour government has, however, demonstrated a commitment to holding a referendum when it determines that the economic conditions for joining are right.
This paper aims to analyze the impact of the UK's decision not to participate in an effort to conclude if the UK would be benefited by joining the single currency.
Hypothesis
Recently, Britain's Labour party was re-elected with a policy of holding a referendum to decide whether or not Britain should adopt the European single currency (Euro Facts, 2004) in future years. British Prime Minister Tony Blair describes the decision over whether or not to join the euro as a priority for future generations. In an effort to determine whether economic conditions are right for joining the euro, the British government issues a series of 5 economic tests. As of 2003, the tests had not been passed, halting the UK's membership. Still, the British government remains committed to promoting membership of the euro.
Because the 5 tests were not passed, the debate over whether to adopt the single currency remains (Euro Facts, 2004). Statistics show that the UK has much to gain from joining the euro, as European monetary union means much more than just sharing the same notes and coins as other countries in the eurozone. Adoption of the single European currency would bind the economic fortunes of the U.K.more tightly to those of continental Europe. With the expansion of the EU and new members committed to joining the euro, it seems that the UK will eventually be isolated from Europe if it does not join.
This paper will examine the positive and negative sides of the decision to join the euro, hypothesizing that the UK could benefit from membership. The main objective of this paper is to provide a recommendation for the future of the UK in relation to Europe's single currency.
Methodology
Membership of a country in the Economic and Monetary Union (EMU) promised members valuable changes (Rinkinen and Hannu, 2004). This study takes a look at the effects of membership. This report will show how Britain could prosper by joining the single currency.
Literature Review
Soon, the UK will need to decide whether or not to join the euro. For the British, this raises many important questions. Will the Government lose control of the economy if it joins or will it lose investment and weaken our international voice if it does not? When, if ever, will the time be right to join? Paul Temperton, in The UK and the Euro (2001) provides an excellent source for this literature review as he explains the pros and cons of the UK joining the euro.
As members of EMU, eleven European Union countries introduced a single currency - the euro - in January 1999. The United Kingdom did not join the single currency, but British companies are still affected, especially the majority that buy and sell products in the euro zone. Also, UK businesses that do not export or import have been affected through their supply chains. Thus, UK businesses must consider how the euro might affect them and why it is important to join the single currency.
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