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A place i Know well

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Introduction

Why should Britain join the Euro in reference to Economical and Political benefits will it bring as a consequence? Many economists and politicians believe that in order to enhance Great Britain's power and influence amongst the European community we must join the Euro, the single currency of Europe. The aim of my report into this hugely debated issue is to examine the advantages and disadvantages that joining the Euro has for Great Britain and to come to a justified conclusion. Economical Advantages: The economical benefit, for Great Britain, in joining the Euro and participating in business in the Euro zone are as follows: -Transaction Costs: There will be no longer a cost involved in changing currencies (frictional cost); this will benefit tourists and firms who trade within the Euro zone. It has been estimated that this economical gain will be equal to 1% of Great Britain's GDP which is a significant benefit. There will also be a reduced need for companies to hedge against exchange rate fluctuations which adds both risk and uncertainty. -Price Transparency: With a common currency it will be easier to compare prices in different European countries because they would all be in Euros. This enables firms to source cheaper raw material and also enables consumers to buy cheaper goods. ...read more.

Middle

It would be difficult to boost demand and get out of the recession. To an extent this occurred in 1992; the UK was in a recession but because they were in the ERM (European exchange rate mechanism) they were trying to maintain a high value of the �. Thus interest rates were far too high (15%) these high interest rates only made worse the UK's recession. -Sensitivity to interest Rates: The nature of the UK housing market means the UK economy is sensitive to changes in interest rates. Unlike European countries most UK householders own their own house, their variable mortgage is a high % of their income. Thus even a 0.25% change in interest rate can significantly affect disposable income. If the UK were to join the Euro now and interest rates were to fall by 2% it would very likely because a further rise in the housing market which would only cause inflation rates to rise. -Conclusion of Disadvantages: The British economy is doing relatively well; by historical standards our economic performance is quite remarkable. The pound is stronger today than both the Euro and the American Dollar, and with inflation presently low, makes trading and business in Europe and the U.S.A an inviting prospect for businesses. Possible changes in interest rates could seriously harm the economy within the citizenry of Great Britain. ...read more.

Conclusion

This primarily related to inflation rate levels, spending policy and debt levels. Clearly if there are weak economies within the Euro zone that do not meet the set criteria they will drag down the overall European economy and the strength of the Euro. The current world currency situation is that the US economy is struggling and hence the dollar is weak against the Euro. Although the pound is also strong against the dollar this is primarily because of a weak dollar rather than a strong pound. More recently the pound has dropped significantly against both the Euro and the Dollar. These changes in exchange rate are based primarily on the fear of recession in the US and a weakening UK economy. Based on this one could argue that there would be major advantages currently for Britain to enter the Euro zone. Overall it seems to me that the Advantages for joining the Euro for out way the disadvantages, many of which are unfounded. The adoption of a single currency should help stabilize currency fluctuations, ease trading within the European economy and protect the UK from the negative impact that the American Economy can have on the British economy. I believe that the UK will still be the financial center of Europe and that the adoption of the Euro will stabilize European economies removing the damaging impact of the 'boom-bust' cycle. Ben Davisson ...read more.

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