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Assess weather or not the United Kingdom should join the single currency.

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Introduction

Katrina McDonald BABI1 EME 200315803 Friday 13th August 2004 Section B Q4 The euro is the single currency of twelve European Union countries: Belgium, Germany, Greece, Spain, France, Ireland, Italy, Luxembourg, the Netherlands, Austria, Portugal and Finland. "Around 7.8 billion euro notes and 40.4 billion euro coins, together worth �144 billion" were put into general circulation by the central banks on 1st January 2001. Yes to Europe to the euro (2003) Killer facts [online] available from http://www.yes-campaign.com/site/home [accessed 5th august 2004] The single currency is controlled through the European Central Bank, which was established in 1998 in Frankfurt, Germany. Three European union nations have so far opted not to join the single currency, these are Denmark, Sweden and the United Kingdom. The aim of this essay is to assess weather or not the United Kingdom should join the single currency. I will do this by outlining the pros and cons of the euro and what it would mean for the UK to join. I will begin by discussing the argument for the United Kingdom joining the Euro. Statistically "36.4%" of Britain's population favour the idea of transitioning to the euro. This figure is mainly comprised of large business owners and traders. For them it would mean reduced transaction costs, with "savings estimated at around �2 billion annually" Yes to Europe to the euro (2003) ...read more.

Middle

It is accepted that if the UK joins the euro-zone, control of the UK economy will be handed over to officials in Brussels. However most of these reasons are political and moral, it is the economic reasons against joining the euro that are the most stark and compelling. Economic theory states the macro objectives of the government as: o Low unemployment o Low inflation o Economic growth o Balance of pay equilibrium In order to succeed in these objectives, the following policies are crucially adhered to: o Monetary policy o Fiscal policy o Supply-side policy o Exchange rate policy. Each of these policies provides balance and control within the UK economy. If the UK joins the euro-zone three out of the above four policies will be rendered unusable which would have detrimental effects on the UK economy. Monetary policy Monetary policy involves restricting growth in aggregate demand by the raising and lowering of the base rate. For example, if aggregate demand is rising too quickly and raising prices (demand-pull inflation), the government can increase the base rate. This would reduce demand and have the effect of lowering consumer expenditure since there would be a higher incentive to save and a higher cost of borrowing. If the UK were to join the euro-zone this policy would be unusable as the European Central Bank (ECB) ...read more.

Conclusion

Furthermore, the ECB will likely have to take relatively drastic action to keep some of the poorer economies in the Euro zone in check. This could have adverse effects on the otherwise sound economy of Britain. The problem is that the economies of the Euro zone are not suitably synchronised to allow economic control to be universal over all of them at the moment one size does not fit all and universal measures are the only option with a single currency. If Britain opts-out for the time being until the single currency has had a chance to both synchronise and improve the economies of the Euro zone, then it might be in a better position to offer advantages that outweigh the risks. On the other hand, if the Euro fails miserably and its economies go into recession, then we will be suitably distant from it to avoid unnecessary damage to our own economy. Bibliography Sloman, J. (2003) Essentials of economics, (second edition), Prentice Hall. Rosewell, B. (2000) The Euro : a loss of faith, London New Europe. Lecture notes, (2003) semester A, Glasgow Caledonian University. The association of European operational research societies (2003) the euro [online] available from http://www.euro-online.org [accessed 2nd august 2004]. No campaign welcomes decision not to join the euro (2004) [online] available from http://www.no-euro.com [accessed 12th august 2004] Yes to Europe to the euro (2003) Killer facts [online] available from http://www.yes-campaign.com/site/home [accessed 5th august 2004] 1 Transaction costs would still exist, shipping *** etc but costs associated with exchange rates would be eliminated. ...read more.

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