According to the National Institute for Economic and Social Research (NIESR),
Britain is economically ready to join the Euro, without posing any serious problems to
the British economy. A Treasury report has shown that the British and European
economies have converged to the point where the Government can prepare for
successful entry into the Euro. This shows that adopting the Euro would be an
economic advantage to Britain, both now and in the future.
Politically, Britain cannot remain one of the leading countries in the European Union
as long as it remains outside of the Euro. The opportunities for Britain to assume a
leading role are great. Both France and Germany, the leading countries in the Euro,
are looking for British support, but are both unprepared to trust Britain fully as long as
we remain outside of the Euro and are therefore uncommitted to the common policies
of the Euro member countries. The relationship between France and Germany is in a
troubled state at the moment. With ten more countries likely to join the European
Union in 2004, France and Germany will no longer have the ability to set up the
Union’s agenda between them. Germany wants British support on economic issues
that will affect the rest of Europe’s trading policies. France is looking for British help
on developing an effective EU foreign policy and on institutional reform. By joining
the Euro, it would help to strengthen Britain’s political relationship with these
countries, which would benefit Britain in a number of ways, one of them being that
countries’ are more likely to trade with other countries that they are on close terms
with.
If Britain joined the Euro, a stronger pattern of alliances within the European Union
will emerge. Instead of France and Germany joining forces together and keeping
Britain at a distance, there would be different alliances among Britain, France and
Germany on different subjects. The smaller European countries would also find it
much easier to ally with the British if we were in the Euro. For example, for a long
time the Dutch have wanted Britain to become more involved in Europe in order to
avoid domination by France and Germany. If Britain joins the Euro, it means that its
voice on economic issues, such as the reform of the European Central Bank, or the
Common Agricultural Policy will be far more powerful than if Britain remains outside
of the Euro.
However, many people feel just as strongly against Britain joining the Euro. The main
argument against joining the Euro is the cost. Converting the British currency from
the Pound Sterling to the Euro would cost £36 billion, money that could be better
spent on the country’s schools and hospitals. All British businesses would be affected
by the change in currency; the total savings on transaction costs for those
businesses that trade with Euro member countries would amount to just 0.1% of the
Gross Domestic Product. This would be dwarfed by the cost of conversion.
Joining the Euro would also push the unemployment rate up again. At present the
British unemployment rate is at its lowest for twenty years. The unemployment rate in
Euro member countries are twice that in Britain. Regional unemployment in Britain is
just 9.6%, compared to ‘Euroland’ where regional unemployment stands at 30%. The
last time Britain’s currency was linked to the rest of Europe through the Exchange
Rate Mechanism (ERM), the results were disastrous. In less than two years Britain’s
unemployment rate had doubled and 100,000 businesses to become bankrupt.
Britain spent a vast amount of money after leaving the ERM in order to protect the
Pound Sterling. The purpose of the ERM was to unite European countries through
exchange rates, which proved disastrous for the economies of the countries involved.
Surely if Britain joined the Euro, it would cause unemployment rates to increase to
mirror those in the rest of Europe.
Britain has a well-developed pension system, with over £830 billion invested in
private pensions. This is more than the rest of the European Union put together.
Joining the Euro would force British taxes even higher in order to compensate for the
bankrupt European pension systems. Taxes in Euro member countries are overall
one sixth higher than in Britain, with the British Government taking 38% of our Gross
National Product in tax, while Euroland Governments take 44% of their GDP in tax. In
order to fund their future pension schemes, taxes in Euro member countries will have
to rise even further, for example 10.5% in Italy, 9.5% in Germany, and 6.9% in
France. This means that Britain will have to suffer financial loss in order to
compensate for other countries’ failure to develop their own pension schemes.
If Britain joins the Euro, it will lose its economic independence, not to mention the
power that it holds in the European and indeed World Trading Market that it has
today. Britain has the fourth largest economy in the world, with a Gross Domestic
Product of around $1416 billion in the year 2000. This figure would decrease if Britain
were to join the Euro, as it would discourage trading between Britain and non-Euro
countries. According to John Hulsman, Senior European analyst, Washington:
“If Britain joins the Euro, it loses out on all of the economic advantages that are the
reason that America invests in the first place”.
Further proof of this comes from Professor Jurgen Donges, Head of German
Economic Committee, who says: “Global investors are staying away because they
don’t believe the Europeans have the will to tackle badly needed reforms. The weak
Euro is a message to each country that they must make fundamental reforms if
Europe is to benefit from the New Economy. In France and Italy reform is barely
discussed and I have the impression that in Italy reform has gone backwards”.
Britain would also lose out on its identity as a individual country, as Romano Prodi,
President of the European Commission says: “The Euro can only lead to closer and
closer integration of countries’ economic policies… This demands that member
states give up more sovereignty”.
In conclusion, the issue of Britain joining the Euro is still a much-debated one.
Whether the Government chooses to join the Euro or not, the decision will affect the
country’s economy. Romano Prodi, President of the European Commission says of
joining the Euro: “By definition it’s a permanent decision. You cannot enter into
monetary union thinking you can do so for five years or so.”
Britain’s Government will have to think long and hard before coming to any decisions
on the Euro, as it will affect our economy for now and for years to come.
