The Euro is a single currency arrangement that came into theoretical operation between 11 members of the European Union in January 1999.

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The Euro is a single currency arrangement that came into theoretical operation between 11 members of the European Union in January 1999. On January 1st 2002, 12 EU members got rid of their own currencies and introduced the Euro as their sole currency. If Britain joins the Euro, it will likely be in 2003. The government has offered the British public a referendum on Britain's entry into it though some ministers have clouded the issue as to whether Britain's entry (or not) will be a political or an economic decision. Jack Straw, Home Secretary, has stated that a decision will almost certainly be a political one whereas the Chancellor, Gordon Brown, has stated that the 'Five Tests' will determine whether we join the Euro - i.e., any decision will be an economic one.

The Euro's record since its introduction has been poor as measured by its value against the pound and US Dollar, and the relative performance of the European and UK/USA economies. It has only been in the summer of 2002, that its value against the dollar has picked up. However, unemployment in Germany, once the economic power-base of Europe, is high. In July 2002, Germany had a symbolic 'no-shop day' by Germans to protest about the tendency of firms, shop keepers etc to push up prices of commodities as against their price pre-Euro.

A single currency means that there are no longer separate national monetary policies, and instead a new central bank has been set up - The European Central Bank - that conducts a Europe wide monetary policy, in particular the setting of interest rates. That means a loss of separate national monetary policies - interest rates and exchange rates. Should Germany want to introduce an economic policy to fight back against unemployment, it cannot do so as this can only come from the European Central Bank.

These are some of the arguments put forward for Britain joining the Euro

Opposition to European Monetary Union (EMU) from the left, is grounded in stories from the past - a belief that EMU continues a tradition of overvaluing sterling in fixed exchange rate regimes. Though such over-valuation has occasionally been imposed, there is no clear evidence that periods of floating exchange rates have actually delivered the flexibility that is theoretically promised.
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Gordon Brown's 'Five Tests' for UK participation are largely met, particularly the advantages to the Financial Services sector.

Even without a floating exchange rate, relative labour costs can still adjust by changes in the wage rate and labour markets are currently attaining a flexibility that makes this feasible. Opponents of the EMU offer only textbook systems as an alternative, in reality floating exchange rates do not deliver stable and well-aligned exchange rates.

Reduced exchange rate uncertainty for UK businesses and lower exchange rate transactions costs for both businesses and tourists will bring an increase in economic ...

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