UK Business Joining the Euro

Interest Rates

With the single European currency comes the single European interest rate. This means that interest rates will be set by non-elected individuals (as with our own rates which are set by the Bank of England) and will be at a rate that best serves all single currency members: the issue here is that the rate could be set at a rate that helps the majority (who could be in a semi-recession but penalize a country not suffering from economic upset (say, the UK).

Pros & Cons

As with many political issues (the Euro is also a major political battle ground “within” parties) the pros and cons for entry are numerous and conflicting.

Some of the PROS mentioned by diverse parties of UK business joining the Euro (not my personal views, I add):

• A saving of £4.5 billion in converting £ into a foreign currency,
• Saving conversion costs will mean competitive pricing with current European traders using the Euro
• Existing exchange rate system can cause unplanned loss of profits if the markets move against the £, vice versa the Euro,
• A single and transparent currency will tempt more UK businesses to compete in mainland Europe,
• A prosperous combined Europe could think of challenging the USA in existing and new markets, say, China,
• A single European market – without trading restrictions – should benefit the UK as we produce quality goods and services,
• A strong GB pound restricts our exports, a stable Euro will encourage exports,
• A weak GB pound means higher prices for imports, a stable Euro will encourage imports,
• Many non-European countries already use the UK as a base, more will follow with investment in a single market,
• UK will have more of a say in European trade policy: we will maintain most of our economic control measures (but not the interest rate!),

… and of course, we can all go on holiday and spend with confidence as 2 GB Euros are a straight swap for, say, 2 Spanish Euros.

Some of the CONS mentioned by diverse parties of UK business joining the Euro (not my personal views, I add again):

• The UK economy is in good shape compared to most of Europe, and the USA,
• The UK would be at the mercy of the Euros performance in those countries within the Euro (presently, this is not good),
• The UK is already a big player on the international scene: G7, UN Security Council, NATO A single interest rate will not allow us to respond to our own economic fluctuations (at present, spend too much, the rate goes up),
• With our monetary control gone, many commentators say output will fall as our confidence for long-term planning wanes,
• A single currency may be the final push towards tax harmonisation with

Europe: some say tax’s could rise by a fifth,

• The cost to the UK of implementing the Euro could be an enormous £36

billion* – the annual education budget is £40 billion,

• It is claimed that our trade with Europe has increased without us joining the Euro and single market, so, why join,
• As only a fifth of our GDP (gross domestic product) is exported, why change the system for all UK businesses,

The UK economic landscape mirrors the USA more than it does Europe,

…and of course, we can all go on holiday and not have confidence in our exchange skills.

Government Position

The UK Governments Intentions

Our present government sees the UK joining the single currency if “economic conditions are right”.

These are:

1. Whether there can be sustainable convergence between Britain and the economies of a single currency.

2. Whether there is sufficient flexibility to cope with economic change.

3. The effect on investment.

4. The impact on our financial services industry.

5. Whether it is good for employment.