If the power of interest rates and certain policies are handed over to the European central Bank in Brussels then we loose a lot of power on decision-making. For example if only our country is in a recession and other countries are booming, then we will have to wait until the more of the EMU countries seem to be heading toward a recession for the Central Bank to take any action. This is detrimental to the future of the economy. If for example we were experiencing high inflation but the other countries within the EMU had stable prices, then little action will be taken and they will not for example increase the interest rates to counter the inflation, because it will not coincide with the other economies. This will mean that the UK will have to suffer with the inflation rates, until other countries are in a similar economic position. This one fits all attitudes toward the Euro and the central bank could lead to other effects. If the interest rate was raised in order to subdue inflation are some countries, it could for example create stagnation in other countries that have low inflation. If interest rates are raised then consumption decreases and so does investment, leading to more unemployment. So in theory the Euro seems beneficial for the members of it, however when looking into it we see that the Euro has many underlying difficulties like creating a policies that fit all the member economies; it will not happen. Critics of EMU say that the creation of a single currency will abolish the policy option to set interest rates separately at the level appropriate for each country.
This exchange of power from our central government to the European Central Government projects another disadvantage to joining the Euro. Euro sceptics believe that joining the Euro will take away our national sovereignty. Having foreign central government deciding on the polices of our economy diminishes our identity, we are not able to decide our own future of our economy, it is in the hands of central European bank. Keeping the British pound is a national sign of our ‘Britishness’ and it is important to keep it in order to maintain this identity. Some politicians, especially in the UK, warn that the introduction of a single currency could eventually lead to the end of the nation state.
Euro sceptics warn that EMU can only be a success if the whole area covered by the single currency has the same economic framework (taxation, labour laws etc) and a labour force, which is highly mobile. They say that the single currency shared between all the states of the US because the labour market is mobile, helped by the common language and portability of pensions etc. across a large geographical area. However in the EMU there are 15 separate countries with widely differing economic performances and economic structures, while each country carries with them different languages. A project like this has never been attempted before and the likely effects will be deeply depressed areas in which people cannot find work, while other areas have a flourishing, high-wage economy. Language in Europe is a huge barrier to labour force mobility.
What’s more is that because policies will usually be implemented on the basis of main economic areas, such as London for the UK. This means that other areas within the UK will have to accept the polices arranged for these flourishing economic areas. This means most people will flood into these areas and leave their areas of failing economic areas. This will mean there will be much more competition to get a job and many will find themselves unemployed, or if they are employed, may have a poor wage.
Lastly there are high transition costs of joining the Euro, it is estimated that it will cost British retailers between £1.7 and £3.5. Such changes include educating customers, changing labels, training staff, changing computer software and adjusting tills. These costs may cause a temporary blip in inflation. The economy may experience cost-push inflation where the transition costs are put onto the customer.
At the moment the UK is two-steps behind those in the members of the EMU. This is advisable because they are able to see if the euro succeeds or fails and this will not be shown until a few years yet. Therefore if it succeeds they can become members, however if it fails they have not lost anything, whereas the countries of the EMU will have experienced two sets of transition costs. The UK economy is in a good situation at the moment and so there is no need to join the single currency just yet, however if it proves successful then the UK can take action.
