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Should the United Kingdom Join the Single Currency?

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Should the United Kingdom Join the Single Currency? Introduction This project will concentrate on analysing the arguments put forth in favour of adopting the Euro as our currency, as well as those against it. A conclusion will then be drawn that weighs both the pros and cons and decides whether it would be beneficial to the UK economy if we adopted the Euro or continued to opt-out. Theory The major economic theories that will be used are the following: * Macroeconomic objectives. * Governmental macroeconomic policies. Analysis Arguments for the Euro The arguments put forth for membership of the "Euro zone" (countries that have adopted the Euro as their currency) are split into two groups: political and economic. A move towards a Federal Europe (Churchill's ideal of a "United States of Europe") that is governed in a similar way as that of the U.S.A. is the primary political argument. A Federal Europe would be governed as a whole with member countries retaining a few powers but losing almost all political sovereignty. It is argued that this reason is one of the driving reasons for the setting up of the Single European Currency. France and Germany in particular want to integrate the core European economies more closely and move towards a single European Economy. ...read more.


However, if the downward trend in figure 1 continues then it should be at UK levels within a couple of years. In theory, once at these levels, unemployment should stay low since there will be a far wider labour market where workers can seek employment. Also, demand should increase due to the competition created by lower transaction costs, so output will be higher. This should create more jobs and thus lower unemployment or at least keep it low. Arguments against the Euro The arguments against the UK's membership in the Euro zone are also split into political and economic arguments. Political arguments include the loss of Britain's individuality as a separate country, as well as the loss of nearly all control over the UK economy. Furthermore, adopting the Euro more or less ties Britain into any future plans of a Federal Europe. It would be hard to back out of such plans with so much integration already set in motion. This, of course, would mean the loss of political sovereignty for Britain. It is the economic arguments against the Euro that are the most important and in many ways the most compelling. Economic theory states that the macro objectives for a government are as follows: * Low unemployment * Low inflation * Economic growth * Balance of Pay Equilibrium In order to succeed in these objectives, governments use policies to control various ...read more.


Particularly, the UK will remain attractive for Far Eastern countries such as Japan and the so-called tiger economies. Secondly, I think that currently the risks outweigh the advantages that would be gained. As mentioned before, the UK economy is at its peak and is doing considerably better than other Euro zone members. If the UK joined the Euro then it is highly possible that the less fortunate countries will drag the UK down with them, as it were. 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. 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. (Words: 1709) Appendices Fig 1.1 Appendices Fig 1. ...read more.

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