Will the United Kingdom Join the Euro Club? When the euro was introduced in January 1999, the United Kingdom was conspicuously absent from the list of European countries adopting the common currency. Although the current Labor government led by Prime Minister Tony Blair appears to be in favor of joining the euro club, it is not clear at the moment if that will actually happen. The opposition Tory party is not in favor of adopting the euro and thus giving up monetary sovereignty of the country.
Public opinion is also divided on the issue. Whether the United Kingdom will eventually join the euro club is a matter of considerable importance for the future of the European Union as well as that of the United Kingdom. If the United Kingdom, with its sophisticated finance industry, joins, it will most certainly propel the euro into a global currency status rivaling the U. S. dollar. The United Kingdom for its part will firmly join the process of economic and political unionization of Europe, abandoning its traditional balancing role.
Investigate the political, economic, and historical situations surrounding British participation in the European economic and monetary integration and write your own assessment of the prospect of Britain joining the euro club. In doing so, assess from the British perspective, among other things, (1) potential benefits and costs of adopting the euro, (2) economic and political constraints facing the country, and (3)the potential impact of British adoption of the euro on the international financial system, including the role of the U.
S. dollar Answer: If UK adopts Euro it will have a Lower transaction costs for firms and consumers and a Greater certainty for firms as benefits but the cost would be the Loss of independent monetary policy, Loss of ability to depreciate currency in recession and No Lender of Last Resort. The main constraint would be that countries joining the Euro signed up initially to the fiscal stability pact which limited the scale of government borrowing to 3% of national income.
The economics of monetary union suggests a better deal and wider choice for consumers because of intensified competition through increased trade. There should be greater investment by businesses because of the reduction of exchange rate risks and the likely reduction in the cost of capital through the integration of financial markets. There should also be greater efficiency in production through the exploitation of economies of scale. Growth should be higher through the consequent raising of the likely trend increase in capacity. Although there may be continued instability in some regional asset markets