Should the United KingdomJoin the Single Currency? :: Economics

Should the United KingdomJoin the Single Currency? Introduction This project will concentrate on analysing the arguments put forth in favour of adopting the Euro as our currency, as well as those against it. A conclusion will then be drawn that weighs both the pros and cons and decides whether it would be beneficial to the UK economy if we adopted the Euro or continued to opt-out. Theory The major economic theories that will be used are the following: * Macroeconomic objectives. * Governmental macroeconomic policies. Analysis 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. A move towards a Federal Europe (Churchill's ideal of a "United States of Europe") that is governed in a similar way as that of the U.S.A. is the primary political argument. A Federal Europe would be governed as a whole with member countries retaining a few powers but losing almost all political sovereignty. It is argued that this reason is one of the driving reasons for the setting up of the Single European Currency. France and Germany in particular want to integrate the core European economies more closely and move towards a single European Economy. The economic arguments are further sub-divided into three groups: transaction costs, trade competition and investment. Ultimately, if the United Kingdom does not adopt the Euro higher costs will be incurred as far as transaction costs are concerned. 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 UKexports being purchased by continental European companies. Basically, UK exports will be more expensive to Euro zone 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. In effect, with the lack of tariffs or quotas for import and export between Euro zone countries, it is almost like an integrated single European Economy as buying from a company in a fellow Euro zone country is exactly the same as buying from a company in your own country. This is called price transparency: it will become far easier to compare prices across the markets of the Euro zone. Should the United KingdomJoin the Single Currency? :: Economics Should the United KingdomJoin the Single Currency? Introduction This project will concentrate on analysing the arguments put forth in favour of adopting the Euro as our currency, as well as those against it. A conclusion will then be drawn that weighs both the pros and cons and decides whether it would be beneficial to the UK economy if we adopted the Euro or continued to opt-out. Theory The major economic theories that will be used are the following: * Macroeconomic objectives. * Governmental macroeconomic policies. Analysis 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. A move towards a Federal Europe (Churchill's ideal of a "United States of Europe") that is governed in a similar way as that of the U.S.A. is the primary political argument. A Federal Europe would be governed as a whole with member countries retaining a few powers but losing almost all political sovereignty. It is argued that this reason is one of the driving reasons for the setting up of the Single European Currency. France and Germany in particular want to integrate the core European economies more closely and move towards a single European Economy. The economic arguments are further sub-divided into three groups: transaction costs, trade competition and investment. Ultimately, if the United Kingdom does not adopt the Euro higher costs will be incurred as far as transaction costs are concerned. 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 UKexports being purchased by continental European companies. Basically, UK exports will be more expensive to Euro zone 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. In effect, with the lack of tariffs or quotas for import and export between Euro zone countries, it is almost like an integrated single European Economy as buying from a company in a fellow Euro zone country is exactly the same as buying from a company in your own country. This is called price transparency: it will become far easier to compare prices across the markets of the Euro zone.