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

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 ove rview 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) .

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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:

Since 1998 trade in goods between euro-zone members is already up 20% relative to

GDP (see Table 1).

This increase is not due to the expense of trade with the rest of the world. By contrast Britain’s trade with the EU has fallen relative to GDP.

As greater trade leads to higher productivity, Britain is losing out on this trade explosion. This is also clearly shown by the table below.

While the average euro-country expanded its involvement in European trade by one- fifth within just three years since the euro was launched, Britain reduced theirs (Buiter, W. et al., 2002).

Table 1

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To the Canadian proprietor, Conrad Black, who supports the idea that Britain should abandon their EU membership at all and instead join the North American Free Trade Agreement (NAFTA), can be replied that transport costs between Britain and NAFTA are three times as high as transport costs between Britain and the EU. Furthermore Britain exports nearly three times as much to the EU as to NAFTA (Huhne, 2001). (see Table 2).

Table 2

The outcome would be more spending on EU-tariffs for exports tha n savings on NAFTA exports. Besides, two thirds of Britain’s trade with the NAFTA is tariff free anyway (Huhne, 2001).

Faster economic growth

A single currency would eliminate the risk premium on separate currencies. This, in

combination with a reduction in budget deficits under the Maastricht convergence criteria, would lead to lower interest rates and probably boost economic growth. The British base rate is clearly above those of the euro-zone. The British economic “stop-go” curse could be broken through EMU-membership and give more stability to the economic growth (Artis,

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