Introducing the Euro
There are numerous reasons for introducing a common currency. ... The euro-zone will become an area of monetary stability in Europe. ... Indeed the Euro may be a recipe for economic stagnation and higher structural unemployment if the European Central Bank pursues a deflationary monetary policy for Europe at odds with the needs of the domestic UK economy. ... The Euro will not be an optimal currency area – the European economies have not converged fully in a real structural sense and at some stage in the future, there is a fear that excessively high interest rates will be set because of an inflationary fear in one part of the zone which is unsuited to another area. ... Consequences · The erosion of national economic sovereignty is the overriding argument against the euro. ... · If the UK joins the euro, failure to adjust may have adverse consequences. If, once inside the euro, the UK experiences a shock, or underperforms the others in term of productivity or unit labour costs, the economy may suffer reduced growth and higher unemployment. · Joining the euro will be costly for many businesses. ... In many cases the businesses affected will be SMEs, which will not derive direct benefits from the adoption of the euro. ... · Inside the euro, structural rigidities are more likely to spread to the UK. The euro will undoubtedly encourage greater tax coordination and more centralisation in various policy areas. However, the main reason why the UK has accepted measures such as the social chapter or the working time directive has been our membership of the EU, rather than of the euro. If we remain more flexible and competitive than our trading partners, the euro may benefit us and the UK could be a successful member. ... · Inside the euro, the ‘growth and stability pact’ will hamper the UK. This pact, which constrains the euro’s members’ fiscal freedom, will be particularly harmful for the UK. ... One major risk is that we may lock ourselves into the euro with a grossly over-valued exchange rate, thus exposing the British economy to a competitive disadvantage. ... If we join the euro, the UK will have to accept an inferior monetary framework. ... Joining the euro entails massive risks. Equally, staying outside the euro permanently also involves serious dangers. The immediate risks, resulting from losing the ability to set our interest rates in line with our own needs and locking sterling permanently, must be weighed against the more long-term benefits produced by greater exchange rate stability and increased competition and dynamism unleashed by the euro. ... Finished products were hard to sell overseas and many manufacturers had problems or closed down completely Houses, Mortgages, Interest Rates Its a simple fact that at the launch of the euro the basic interest rate for those in the euro is less than half that of the U. ... Even then it is unlikely that the amount paid per month for a given property will be much, if any, more than that paid today A single interest rate across the whole euro-zone cannot be appropriate for the diverse economies involved. ... So perhaps its not so bad after all Euro Won’t Help Trade Recent research by Christopher Taylor, former Chief Adviser in the European Division of the Bank of England, suggests that the UK would “suffer a marked increase in volatility on trade with the rest of the world” as a result of joining the euro. Monetary integration in Europe has led to “polarisation” of the euro exchange rate against the dollar. Membership of an enlarged euro area which included the UK would be likely to result in the UK experiencing twice as much volatility against the dollar as it does at present.