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Advantages and diasadvantages of joining the Euro

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Introduction

Introduction The key economic debate that will dominate the political agenda over the next few years will be whether or not the UK adopts the European single currency. This report will look at the list and explanations of the advantages and disadvantages of the UK joining the European single currency; the euro. The euro is the currency of twelve member states of the European Union. Namely;- Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, and Spain. On January 1st 2002, these countries introduced euro notes and coins, which replaced the former national cash forms such as the French franc and the German mark. The euro is now the only legal currency in these countries. There were also 10 new countries joined the EU in 2004, which will be encouraged to adopt the European currency. The UK government policy is to join the euro if parliament, the government and the people, in referendum, all agreed to the changeover. These plans have been in the making since 1997. The single currency is not principally related to economics, although the economic consequences will be felt by UK businesses whether we are part of it or not. If the UK were to join the euro, there would be a changeover period. This timetable shows the period as being, in total, approximately 36 months or 3 years. ...read more.

Middle

The EU will eventually impact on both the type and level of taxation. Their tax levels will damage the UK economy through decreasing our competitiveness with their taxes being a sixth higher than those of the UK. To work efficiently the EMU will require an immense central budget over which the ECB controls taxation, spending and interest rates. One Interest Rate The UK would not be able to set its own interest rate; instead it would be set by the European Central Bank (ECB) for all euro zone countries. This will reduce the government's ability to react to unexpected disturbances or shocks (these can affect countries/regions in different ways). Any change in the interest rate will benefit the euro zone countries as a whole, which may mean it benefits some countries more than others. Mortgages in the UK are different to those in the rest of Europe. In the UK there are a high proportion of owner occupiers with a high level of variable rate mortgages. In the rest of Europe however, there is a higher tendency for long-term renting and those that do have mortgages are on long-term fixed rates. Therefore homeowners in the UK are more likely to be affected by interest rate changes than their counterparts in other EU states. Exchange Rates Locking with the euro at the right exchange rate is highly important. ...read more.

Conclusion

The one interest rate is causing problems in Germany where the economy is in a slump and in Spain and Ireland where the economies are over heating and inflation rising. Both situations have an effect on employment, if these countries where outside the euro zone they could adjust their own interest rates and exchange rates to compensate. Political The euro can also be seen as a political device not just economic. If the UK joins there will be great pressure for us to participate in more acts of union. Also on the political side, it has been said that independent central bank is unfair. Governments must be able to control the actions of the central banks because they have been democratically elected by the people, whereas an independent central bank would be controlled by a non elected member. Therefore there would be a considerable loss of sovereignty. Power would be transferred from London to Germany. This would be highly unwanted because national governments would lose the ability to control policy. Independence We are the 4th largest economy in the world. Inflation and employment are at their best levels for 40 years. We have achieved long-term stability and joining the euro will only destroy this. By opting out we will have more independence and will be able to follow a more national foreign policy. As a result we will be recognised as a major world player and have more influence abroad separate from that of the EU. ...read more.

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