The Pros and Cons of the Euro in Britain
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Authors
Newman, Brian
Issue Date
2002
Type
Thesis
Language
en_US
Keywords
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Abstract
The Euro~ the European national currency, came into effect on January 15, 2002. At
present, there are fifteen member countries in the European Union, but only twelve
that have chosen to adopt this national currency. The three countries that opted not to
join are Denmark, Sweden, and the United Kingdom. Of those, the most significant is
the United Kingdom. There must exist some underlying reason as to why the third
largest economy in Western Europe has opted not to join the single currency. The
intent of this paper is to research this decision through presenting the pros and cons of
the Euro in Britain with an emphasis on small businesses.
A single national currency has the potential to achieve many different goals such as
lower interest rates, an abolition of conversion costs, and price stability. Yet, there has
never been an undertaking quite like this before. The European Union is attempting to
tie fifteen currencies with different economic cycles into one.
The Euro has brought a heated debate to Britain since there is a side in favor of the
Euro and there is another side against it. There are several key issues that have been
brought up by both sides. The first of these is interest rates; can a symmetrical interest
rate properly affect fifteen different economic cycles? Another issue is the exchange
rate, what would be the correct rate to fix the sterling pound at? Too high of an
exchange rate would bring back the nightmare of the Exchange Rate Mechanism. One
last issue would be what lies beyond monetary union? Tax harmonization is one of
them, and this would drastically raise taxes in Britain.
We conclude by saying the Euro has potential to do a lot of positive things in Britain,
but it is too difficult to predict the final effects. The Euro will also have different
impacts on different economic agents. Where it may have a positive impact on one
agent, it may very well have a negative impact on another one. In the case of small
businesses in Britain, there are several fairly predictable negative impacts and no
foreseeable positive ones.
The last roadblock that stands between Britain and the Euro is a referendum. In order
for this to be passed, there must be a simple majority of popular support in favor of the
Euro. The majority of the businesses in Britain are small and family run. The British
are well aware of the consequences behind adopting a national currency, hence their
reluctance to vote in favor of the Euro.
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45 p.
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