The adopting of different pricing strategies by firms across the EU has also caused differences in prices. Pricing policies are methods by which firms measure cost levels and domestic prices to international competitiveness. The implementation of different pricing methods have as a result also lead to price diversity
(ii) Examine the possible benefits to Euro-land consumers of the introduction of the euro.
Euro-land consumer could experience a number of benefits through the introduction of the euro.
A common currency would simplify trade. Due to the EU consisting of a large number of currencies from Deutsch Marks to French Francs the various currencies will no longer have to be bought, while the own domestic currencies of the EU countries will have to be sold, through the exchange rate market. Due to the some currencies within the EU having a greater value than other , an adoption of the common European currency will benefit firms who heavily rely on exports. The adoption of a common European currency is likely to lead to a depreciation of the countries who have prior the Euro have had an overvalued currency, the depreciation will make the firms in the overvalued countries more competitive on the international market. However, this will have trade off effect. A depreciation will discourage speculative ‘hot money’ being invested into the wealthier countries for they look for the highest rate of interest on savings. The implementation of the Euro will cause the member countries to join the euro it would share a common interest rates with its fellow EU members who have also adopted the euro, as a result ‘hot money’ will no longer be attracted. As a result the autonomy of the Banks in each country will be abolished over the setting of the interest rates, the European central Bank sets interest rates for all EU countries who have adopted the euro.
(c) Analyse the implications for location decisions by businesses of Britain remaining outside the euro zone.
The article argues that British businesses which will decide to remain outside the Euro-zone will have to face a number of issues. British businesses are likely to lose jobs, increasing unemployment in Britain doe many jobs will be transferred to the Continent. However, on the other hand it is expected that unemployment will also increase in the EU zone. The reason British firms outside the EU may suffer is due to them experiencing a ‘competitive disadvantage’.
The type of unemployment that British firms outside the EU fear is known as frictional unemployment. Frictional unemployment is a type of unemployment which reflects job turnovers in the labour market. Even when there are vacancies it takes people time to search and find a new job. During this period workers remain frictionally unemployed. British firms which have not set up in the EU could find much of their workforce shifting to working within the Union. The geographical mobility available to workers has made it extremely easy for to move between regions to attain employment. This could lead to a disequilibrium for British workers would withdraw more from the national economy than inject into it. Being educated in Britain yet working for another economy would not be favourable. As a result Britain could be at a disadvantage competitively. Because of much of its more skilled and specialised workforce having shifted their base to the EU, British firms could be forced to employ less efficient and unskilled labourers which could cause UK products and, or services to become less efficient for they could decline in quality for example. However, due to more UK workers moving to work in the EU region employers may find itself having a greater supply of workers, which would cause unemployment to increase among EU workers. Due to firms choosing the best and most efficient workers many from abroad (outside the EU) more EU workers could find themselves unemployed.
(d) Critically examine the likely impact of UK membership of the euro on the UK economy.
If the UK was to adopt the euro it would experience a number of advantages.
Due to Britain carrying out over 50% of its trade with the EU, the creation of a common currency would simplify trade, euros will not have to be bought and sterling will not have to be sold on the exchange rate market. Also due to the pound being of greater value that the euro, an adoption of the common European currency in Britain would benefit firms who heavily rely on exports. The abolition of Sterling is likely to lead to a depreciation making UK goods more competitive on the international market. However, this will hava trade off effect. A depreciation will discourage speculative ‘hot money’ being invested into the UK economy for they look for the highest rate of interest on savings. If the UK were to join the euro it would share a common interest rates with its fellow EU members who have also adopted the euro, as a result ‘hot money’ will no longer be attracted. As a result the Bank of England will lose its autonomy over the setting of the interest rates, the European central Bank sets interest rates for all EU countries who have adopted the euro.
If the UK were to join the euro it would also be committed to a single fixed exchange rate within the Euro-zone which would make trade easier and less time consuming and no longer prone to price fluctuations, firms would no longer have to sell and buy currencies on the foreign currency market. It is important to take into account however that the Euro can fluctuate with currencies outside this zone such as the US Dollar or the Japanese Yen.
