To what extent do you agree with those
who argue that the UK should join the
European Monetary Union (EMU)?

von: Alexander Dürr

Inhalt

Situation

More trade in the single market

Faster economic growth

Foreign Direct Investment (FDI)

Lower inflation

Conclusion

BIBLIOGRAPHY

"Was it over the line?" – maybe one of the most import questions ever in England’s football history. Few if any goal has been discussed more often. At 2-2 in extra time in the 1966 final against West Germany, with eleven minutes of extra time gone, Geoff Hurst shot from fairly close in and the ball hit the underside of the cross bar, bounced down - apparently near the line - and was cleared. The referee awarded a goal after speaking to the linesman. Did the third goal cross the line? It is impossible to know for certain. The final whistle blew. England had won the World Cup at Wembley for the first time (EFL Reading, 2004). Obviously this decision of the referee brought the World cup to England .

In politics, where decision have to be made every time, there are sometimes situations of uncertainty. Not always can a decision be made from the comfortable situation that everything is 100 per cent clear and the foreseeable benefit can convince even the hardest doubter.

One of these situations for the United Kingdom nowadays is the question if they should join the EMU.

Situation

The initial situation is difficult. First of all there is a predominant “offshore” mentality which Britain had ever had. A public opinion-poll showed that 80% are not in favour with a single currency whereas in the business sector at least 50% support the project (Johnson, 2000).
With regards to Mandelson (2003) the country is generally divided into three different groups:

1) Those who do not want Britain to be in the EU at all. They see the pound as a national symbol and are definitely uncompromising at all.
2) Those who want to join the Euro zone as they can see the economic advantages for Britain.
3) The last group is the indecisive mid field. Accepting the arguments for joining, they see it as unavoidable for Britain not to go in. But they want to wait and see how the currency performs before joining lately.

The Euro, which is the legal tender of approximately 301 million people in 12 EU countries, is the third world currency beside the US-Dollar and the Japanese Yen. When the European Monetary Union was established on 1 January 1999, Britain was already in the position of an onlooker as once before decided not to take part (Johnson, 2000).

To get an extensive and factual overview about this problem, it is necessary to look on both sides of the (Euro) - coin. As it is too complex and inexhaustible to point on every possible area, this work will only concentrate on the assessment of the main economic facts and discuss existing benefits and possible costs of staying out.

More trade in the single market

The result of a single currency will be lower cross-border transaction costs. The putative argument of high conversion costs (estimated 2.5 billion pounds or 0.3% of GDP) can be put on two main facts:

• While conversion costs are nonrecurring, the transaction saving will be permanent.
• Annual transactions savings will also be 0.3% of GDP.

Besides, the conversation costs will be probably spent in the UK economy and therefore flow into the GDP (Johnson, 2000). Undoubted it will become harder to make profit as a result of increased competitive pressure and prize comparability (Huhne, 2001) .

But there will come up the opportunity for the business to restructure their production and logistic systems and take the advantages of the lowest costs in the euro-area regardless of exchange rate considerations. Once quoted all prices in the same currency will have the positive effect that existing price differentials will converge downwards. Furthermore as exchange rates which can be indicated as not-tariff obstacles will vanish, it will have a positive effect on the trade between the UK and continental Europe (Huhne, 2001).

There will be a high increase as this abolition has the same effect as price cuts. That is confirmed when we have a look at what has happened in Europe since the euro became the single currency for all EMU member states:

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