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The United Kingdom & the EU (the Single Currency). Introduction a) Why did not the UK join the Single Currency? b) What advantages and disadvantages of the UK joining the single currency? c) Actual news & opinions about a membership in the single currency. Conclusion.

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the united kingdom the eu the single currency
The United Kingdom & the EU (the Single Currency)

Introduction

a) Why did not the UK join the Single Currency?

b) What advantages and disadvantages of the UK joining the single currency?

c) Actual news & opinions about a membership

in the single currency.

Conclusion

slide2

19,4% of the World-GDP

18,6% of the World-Trade

The United Kingdom & the EU (the Single Currency)

Introduction

On 2nd May 1998 the European Commission

in Brussels decided the membership of 11

EU-countries to the Euro-

Launching on 1st Jan. 1999.

The Euro-11-Zone includes:

300 million people

slide3

1992 - Treaty of Maastricht

1994 - Founding European-Monetary-Institute

1995 - European Parliament settled a scenario in

Madrid - these are the following three stages:

1.1.2002 - Bank notes issuing - 3rd stage

1.7.2002 - The national currency is not valid!!

Timetable

Mai 1998 - Decision about the participants - 1st stage

1.1.1999 - Starting date - 2nd stage

a why didn t the uk join the single currency
a) Why didn’t the UK join the single currency?

1) The convergence criteria

  • An inflation rate that is no more than 1.5 % higher term
  • than the average of the three lowest inflation rates.
  • A long term interest rate that is no more than 2% higher
  • than the three lowest interest rates.
slide5

A government budget deficit that is no higher than

  • 3% of GDP.
  • And government debt that is no higher than 60% of GDP.
2 why did the uk opt out
2) Why did the UK opt out?

i) Economic obstacles

ii) Political and social obstacles

i economic obstacles
i) Economic obstacles
  • The British economy is out of synch with the
  • continental cycle.
  • The UK does not have a high degree of interdependence in trade with the European countries
  • (ref. table).
  • The sterling is overvalued.
ii political and social obstacles
ii) Political and social obstacles
  • The EMU (European Monetary Union) is currently deeply unpopular with ordinary people.
  • The British people are reluctant to enter in the single
  • currency because they don´t want to lose their identity.
  • Another reason is their reluctance to suffer the
  • predicted economic damage of the single currency.
1 economic consequences of the uk opting out

i) Disadvantages of opting out

  • The country, like other outsiders, will be very much
  • affected by the policies adopted by the EMU members.
  • All decisions which relate to monetary and exchange rate
  • policy will be to reflect primarily the interests of the EMU
  • participants.
  • Its trading partners would dominate decision-making
  • in key areas of EU policy.
1) Economic consequences of the UK opting out
slide11

These partners would acquired a competitive

  • advantage as a result of EMU’s success.
  • The gain in competitiveness of the EMU group would,
  • other things being equal, be equivalent to a loss of
  • competitiveness among the countries outside.

Then, it will lead to :

  • Higher risk premium on interest rates
  • Greater exchange rate volatility

 Lower rates of investment and growth

 Higher unemployment and strains on government

finances.

slide12

The UK, like other “outs”, will be shielded from the

  • counter-cyclical fiscal policy instability.
  • It will also be spared the inevitable political frictions
  • which will arise in the process of adjustment to a single
  • monetary policy.

ii) Benefits of opting out :

2 consequences of the uk joining in short or long term

Total costs for a business = £ 20 m

  •  costs from strategic changes to maximise the business
  • competitiveness in the new Euro-zone environment.

 Costs in changing their systems in order to

trade in Euro

 Costs of transferring their base accounting

systems to the Euro

2) Consequences of the UK joining (in short or long term).

i) Costs or disadvantages of joining

slide14

No transition period for the UK

  • Cost of the loss of independence in interest rate
  • decisions
  • The UK, due to being a long-term Outsider, would be
  • unlikely to have any serious influence on measures
  • adopted by the EMU members.
slide15

The domestic market needs a single currency i.e.: currency crises in autumn 92/summer 93

  • Retirement of operation costs
  • Long-term economic stability
  • No exchange rate losses for companies
  • i.e.: Germany lives up to 60 % from EU export
  • Abolition of barriers to a single European market
  • Price transparency

Principle Advantages for the 11 members of the Euro-zone

slide16

Increased competition

  • 11-Euro-zone
  • Countries = save 0.3 - 0.4 % of EU GDP p.a.
  • (transaction costs).
  • The UK = only 0.2 % of EU GDP p.a.,
  • because the UK trade with other EU
  • countries is below average.
  • Greater specialisation and trade within the Euro-zone
  • Euro will bring more integrated European financial
  • markets.

ii) Advantages of joining

Cqs : Higher growth in the Euro-zone

slide18

How could UK join the s.c.?

The Government’s National Changeover Plan shows that

Tony Blair aims to speed up the process. The UK can

prepare more quickly than the first wave entrants managed.

The Government’s National Changeover Plan shows that

Tony Blair aims to speed up the process. The UK can

prepare more quickly than the first wave entrants managed.

  • Treasury sources are making clear
  • no decision until after the next election
  • the document givesthe green light to speed up its preparations
  • that a decision could be made as late 2001, with
  • Britain possibly joining economic and monetary union by 2003
britain could switch to euro in 40 months

Referendum

Euro Cash

UK Joins

4 months

6 months

Decision

End

24-30 months

Britain could switch to Euro in 40 months

40 months

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