• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

The Euro to join or not to join?

Extracts from this document...

Introduction

The Euro to join or not to join? I will examine whether or not Britain should join the Euro. I will examine both the arguments for and against joining and try to draw an overall conclusion. 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. The economic arguments are further sub-divided into three groups: transaction costs, trade competition and investment. Ultimately, abstaining from the Euro means higher costs (as far as transaction costs are concerned) than if we joined. The commissions involved in buying the Euro when trading with European countries will remain and the uncertainty arising from a floating exchange rate will also continue to be apparent. Whilst this is unlikely to make a significant difference for UK businesses buying continental European exports, it could well affect the number of UK exports being purchased by continental European companies. Basically, UK exports will be more expensive to Eurozone countries compared to exports of other Euro zone countries due to the changing cost of buying the pound. The UK's membership in the Euro zone would eliminate these costs. Trade competition refers to the fact that if exports from Euro zone countries are all priced in the same currency then it is easier for companies to see price differences between companies across borders, ultimately increasing competition between companies. ...read more.

Middle

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 aspects of the economy: � Monetary Policy � Fiscal Policy � Supply-side Policies � Exchange Rate Policies In the analysis that follows, it will be shown that three of these policies would be rendered unusable to control the UK economy: 1. Monetary Policy Monetary policy involves the raising and lowering of the base rate to control aggregate demand. For example, if aggregate demand is rising too quickly and raising prices (demand-pull inflation): In this situation, the government could increase the base rate. This would have the effect of lowering consumer expenditure since there would be a higher incentive to save and a higher cost of borrowing. ...read more.

Conclusion

Particularly, the UK will remain attractive for Far Eastern countries such as Japan and other Asian 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. 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. ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our GCSE Economy & Economics section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related GCSE Economy & Economics essays

  1. UK Membership of the European Monetary Union.

    5. Conclusion: Before I can conclude the economic pros and cons of the UK joining the EMU, one needs to mention the convergence criteria delineated in the Maastricht Treaty, which determines which countries can enter the European common currency.

  2. The Quest for Optimal Asset Allocation Strategies in Integrating Europe.

    When investors increasingly diversify their portfolio by looking at both countries and sectors, the correlation coefficient between the two might increase, because both assets are then equally influenced by the general market factors such as investment sentiment. 7.2.2. Discussion of results: So far, by illustrating the time-varying pattern of correlations, we have seen that: A.

  1. THE UK AND THE EURO

    The conversion cost of the pound to the Euro and vice versa, and difficulties associated with it is a disincentive to business. It's a disadvantage for the UK economy. But, if UK joins in the EMU, such problems will be eliminated and UK businesses will be better of.

  2. Should Britain join the Euro?

    Unfortunately this would also have a detrimental affect on the exchange industries and banks because many of the exchanges are from Pounds into Euros and back again. Companies such as Thomas Cook get part of their income from this and would lose out if we were to change to the

  1. Transaction Cost Theory

    His work contributes to, and encourages others in the development of, such a theory. Best (1990), for example, like Lazonick, draws on Schumpeter and, although critical of Chandler, formulates a theory of the firm which is consistent with the type of theoretical development that Chandler calls for.

  2. The effect of the Euro on 'The Carphone Warehouse' Plc

    Exemption Clause - Student Projects (to be inserted on project submission) Neither the student nor Kingston University makes any warranty, express or implied, as to the accuracy of the data or conclusion of the work performed in the project and will not be held responsible for any consequences arising out of any inaccuracies or omissions therein.

  1. An Empirical Investigation into the Causes and Effects of Liquidity in Emerging

    3.3 How to measure liquidity? Sarr et al. (2002) explain that liquidity measures classify into four main categories: (i) Transaction cost measures that capture costs of trading in the financial assets and any frictions in the secondary markets. (ii) Volume-based measures look at the volume of transactions rather than price

  2. Victoria Junior College

    era being a superpower meant that the US had to compete with the Soviet Union in economic and political terms. Moreover, the US was obliged to give aid to its allies in order to secure their support and act as a strong bulwark against communism - the Marshall Plan which

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work