Should we go in the single currency

The euro is a unified currency that is planned to take the place of national currencies following a referendum in the future. The use of the Euro will unite the member states creating a European super nation although this will in effect have implications; some good some bad on individuals, business, economies and governments.

Before Britain joins the Euro the following criteria has to be satisfied:

The budget deficit has to be less than 3% of GDP,
The governments total debt has to be less than 6% of GDP,
Inflation has to be less than 1.5% higher than the average of the lowest inflation countries,
Exchange rates should be stable,
Interest rates should be in line with others and stable.

Once this has been acomplished a further five economic tests have to be attained which are when business cylcles and economic structures are compatible, whether there is sufficient flexibility to deal with problems (asymmetric shocks), impact on investment (financial service industry) and the city and whether joining the Euro would promote higher growth, stability and a lasting increase in jobs. Once four of the five tests are chieved then entry will be considered.

If we were to join the Euro , the labour party will loose control as the structure of the EU institution confiscate power as shown below

EUROPEAN COMMISION

Propose legislation

EUOPEAN PARLIAMENT

Debates proposal

COUNCIL OF MINISTERS

Accepts/rejects proposals

EUROPEAN COURT OF JUSTICE

Passes judgement on EU law

The above can be seen as a disadvantage to the government, however to truly asses whether the Euro should go ahead all of the many pro’s and cons need to be determined.

The advantages to joining the Euro are that exchange rates will ...

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If we were to join the Euro , the labour party will loose control as the structure of the EU institution confiscate power as shown below

EUROPEAN COMMISION

Propose legislation

EUOPEAN PARLIAMENT

Debates proposal

COUNCIL OF MINISTERS

Accepts/rejects proposals

EUROPEAN COURT OF JUSTICE

Passes judgement on EU law

The above can be seen as a disadvantage to the government, however to truly asses whether the Euro should go ahead all of the many pro’s and cons need to be determined.

The advantages to joining the Euro are that exchange rates will be fixed, at the moment fluctuating exchange rates of currencies create uncertainty in international trading which hinder business. This is restrictive and hinders growth as at many times during the year when the currency gets stronger exports are weakened as they become more expensive abroad which means competitiveness is often lost. Based on this a single currency would be bennifical as more secure trading positions will be established allowing firms to plan long term and establish cash flow more accuratley.

Individuals travelling between member countries will no longer have to change currency for a different countries and pay the commision assosiated with the exchange. The Euro is benneficial for this as it removes the bureaucracy and uncertainty of consumers. Consumers can also easy compare prices between member states, which will make firms more competitive for consumers as they will attain perfect knowledge.

The Euro would also allow businesses transactions between member states to take place with confidence which should similate growth. Currently exchange rates pose a financial risk to businesses and individuals that are involved in foreign transactions. A sudden fluctuation in the value of a currency could see the cost of a particular item dramatically increase or decrease in a short space of time. A common currency would remove this threat completely. This may also encourage growth by enticing businesses to get involved in international trading. Exact costing of transactions can be calculated before the transaction takes place and the risk of an exchange rate fluctuation would no longer be applicable. This increase in foreign trade would also bennefit the country’s economy by increasing export figures. This would have a positive effect on the balance of trade.

Economists argue that the Euro will increase market efficiency leading to Europer becoming more competitive in world markets. Another goal of the Euro is to increase trade and investment flows. The eEuro would unite Europe trade wise and increase market size massivley. If we keep our own currency then trade will be restrcted to an extent to our domestic market.

The Euro would also combine economic growth with high levels of employment and low levels of inflation by the use of impartial policies.

Workers will be able to compare wage rates between other countries workers within the same industry, if large differences are apparent, workers may demand wage increases to bring their earnings in line with other member states. Similarly as wage rate can be compared, so could goods and services within member states which will mean more consumer choice and in effect gain more power s a group.

However there are many disadvantages as well, which include the following:.

Unlike other EU countries, Britain has a large export market outside of Europe. The Euro would not be of use and may even be a disadvantage when trading with the US and common welth countries.

Interest rates which are suitable for one country may be unsuitable for the economy of another, i.e. one country within the union maybe in recession while others are in bom). By joining the Euro, Britain would lose lose control of monetary policy (influence interest rates according to inflation) so we would loose our ability to be independantly in control of own ecomy. Montary Union would take away a major economic tool to control inflation of interest rates from governemtns or in the U.K’S case the bank of England. The responsibility to control interest rates would be passed onto the European Central Bank. The problem which some economists forsee is that the rate changes will be made based on averages and not individual economies.

As we have seen the ultimate steps towards the total integration of Europe as a trading block would be through monetary union and a single currency. The Euro has many advantages as discussd such as the abolistion of exchange rates which would enhance international trade, marker efficeincy due to more competition, the goal of the European Central Bank to lower unemployment and people will be able to assess the advantages and disadvanteges in relation to employment and goods and services. The disadvantages however are the loss of soveriegnity, unification of interest rates (what suits one country may not suit another), Britain would have no control over some aspects of the economy.

As we have seen above; joining the Euro would carry many economic implications in which the good presently outweigh the bad.