Discuss the arguments for and against the UK joining the European single currency.
The European single currency is a common legal tender currently used by 17 of the 27 member states of the Euro zone. This single currency is known as the Euro which was first introduced as an electronic currency on 1st January 1999, where it could only be used for cashless payments. Then later on in 2002, the euro became a physical state, notes and coins. The intention of creating a single European currency was in order to make it easier to trade across the EU, excluding the problems of exchange rates. However, there are two of the original member states that still to this day do not use the Euro; Denmark and the United Kingdom. They both agreed an ‘opt-out’ in the treaty which then excluded them from participation in the third stage of the European Monetary Union. (EMU) For the remainder of the member countries that currently do not use the single currency, they will need to meet certain conditions before changing their current money into Euros. These certain conditions would be known as the convergence criteria, which is a mixture of economic requirements that EU members must meet before entering the third stage of the EMU. Over many years there have been several debates as to whether or not the UK should enter the European single currency. With regards to this debate there are many advantages for the UK to join the single currency that we should take into account. For example, if the UK was to enter this scheme then one advantage would be that the single currency should put an end to the days of currency instability in Europe by fixing exchange rates. This action would create reduced exchange rates for UK business as well as tourists. By reducing the exchange rates, ‘it will cause the elimination of the risks of unforeseen exchange rate revaluations or devaluation, but also it means that no one country can devalue its currency against another member country to increase their competitiveness of its exporters.’ (The European Union) According to advocates “The euro zone will be a zone of economic stability.” (European business) Furthermore, if the UK was to stay outside of the Euro zone and keep relying on its over-valued currency, then the UK’s export performance would most probably suffer. For example, a number of multi-national companies have pulled out of the North East region including big names such as; ‘Siemens’ and ‘Gillette.’ Taking into consideration the UK, Toyota has threatened to pull out of the UK if it doesn’t adopt the single currency. (Floyd 1999) This is understandable because if Toyota are able to make a profit and succeed with other member countries in the European Union that all use the single currency then why would they bother with the UK if it is more time consuming and more difficult because of the exchange rates. One further benefit for the UK to adopt the European single currency would be the fact that there would be no transaction costs. For example, if we have a shared currency with the other member states of the Euro zone then we would no longer need to pay the transaction costs of changing currency. According to some statistics (Anon, n.d) currently, ‘UK firms are spending approximately £1.5 billion per year on buying and selling foreign currencies in order to carry out business.’ If you think how much money the country would save if only it joined the single currency it would be a huge amount. One last point would be that if the UK was to stay outside of this single currency then sooner or later it will loose political and economic influence on shaping European integration. This would be because the new Euro is going to be one of the strongest currencies in the world along with the dollar and the Japanese yen. It will soon become the second most important currency in the world after the US dollar. On the other hand, you should also take into account the arguments against this...
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