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Economics in a European Context Coursework - Monetary Union

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Economics in a European Context Coursework - Monetary Union Introduction The UK is one of three old member states in the European Union that have decided to opt out of the Euro. All new member states are required to adopt the Euro when they reach the right level of economic convergence which is set out by the 'Maastricht' convergence criteria. The Euro is the common currency of 12 of the member states, but the issue for Britain is whether the benefits will be sufficient enough to justify the costs of conversion. The implementation of the Euro by all member states would be the last stage of transformation for Europe to become a fully integrated single market. Joining the single currency would mean losing forms of independence but would the economic benefits lead to greater prosperity? My essay examines the effects of the EMU for British businesses and consumers. Advantages One of the greatest advantages to businesses would be the decrease in business costs by removing the need to convert the pound to the Euro when trading with the Eurozone. British produced goods may appear less price competitive than those that are produced within the Eurozone due to the additional costs of having to convert currencies for British firms. ...read more.


Economies of scale would be advantageous towards Britain's medium-sized companies allowing them to expand without restriction across the Eurozone. Secondly, firms, especially domestic monopolies will face more competition. Finally, continuing enlargement of the monetary union with new European states means an ever increasing amount of consumers. Europe currently has in excess of over 200 million customers and the Euro is one of the most significant currencies in the whole world. If Britain were to join this would bring immense power and a greater customer base. The importance of the Euro and the amount of consumers operating under it mean that inward investment from the rest of the world into Britain would appear more attractive and would be likely to increase. Foreign firms are a catalyst for better economic performance. They invest more, employ more skilled people and are more productive. In manufacturing, for example, foreign-owned firms produce about 40% more per worker than indigenous companies. Foreign-owned firms now account for almost a third of total R&D expenditure by businesses, double their share ten years ago - this could dramatically increase Britain's real GDP. The single currency has enhanced the European single market, removing the few barriers remaining. ...read more.


If the pound was too high against the Euro then firms who export would be left with products which have a too high price tag to other Eurozone countries and imports from other member states would be favourable. The disruption to our competitive position could have long-term effects as businesses would have to find ways of regaining the competitiveness that they had lost. If the rate were to low, imports would be too expensive but exporters may see increased revenues. The government would have to find a perfect balance against the Euro. In my opinion the EMU seems to have many advantages over sterling and I believe that Britain should join when the time is right. I feel that when the British economy's growth is declining the time would be right. Although there would be an economic price to pay it would be worth paying as the result would be a likely stimulation in growth. While growth is continued to forecast it would be important for Britain to keep control of its monetary policy so it can continue to implement measures to keep the growth sustainable. As Europe comes out of recession, people will see the advantage of the Euro, illustrated by the collapse of inward investment in the UK since we opted out. ?? ?? ?? ?? Joe Page 1 7/5/2007 ...read more.

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