Should the UK Join the Euro - Coursework Example

Should the UK join the Euro? The discussion about whether the United Kingdom should join and participate in Euro as its currency and abandon the currency that it has currently has sparkled lot of debates. The move to join the Euro will have great impact and implications on political, social and economic aspects. In the recent past, the government of United Kingdom made it clear that they were not intending to engage in Euro although views have emerged about what exactly are the implications if it happen to join and these have been drawn not only from an economical point view but also from both the social and political angles so as to have multi-dimensional outlook and prediction of what that move may mean to the United Kingdom countries. Euro is the currency that states that are within the Eurozonal framework trade with (Verdun, 2006:33). Eurozone consists of about nineteen countries that subscribe to and are constituents of the European Union (EU). Currently United Kingdom uses sterling pounds as its currency of exchange and below is the critical assessment and evaluation that debates on whether UK should join Euro or not. At the end, a clear stance is demonstrated based on the evidence provided. Talks about UK joining the Eurozonal map took a shift when the former Prime Minister Tony Blair and the whole government set five conditions that have to be met for UK to join the Euro. Later on Blair was succeeded by Gordon Brown who maintained the same stance as Blair about UK joining Euro. About seven years ago, Gordon Brown made decision that has until now has been withheld about the zero chances of Britain joining the Euro zone (Owen, 2012:120). Although many economists in Britain at the time when economic crisis was experienced suggested that UK joining the Eurozone would work for the benefit of the nations, these suggestions were greatly condemned and detested by a majority of the citizens including Gordon Brown himself. This period of economic upheaval seemed like it could set United Kingdom to pair with other states of the Eurozone and share the Euro currency but it did not materialize then (Owen, 2012:124). However, there are several reasons why UK should or should not join Euro and they have been discussed. Advantages of Joining Euro Protection from Exchange Rate Fluctuations It would really serve UK best in the international market if it joins the Euro since it will be best insulated from the many ever changing rates in currency. This is because most of the countries it will be trading with have the same currency (Euro) rather than having pounds and other currencies bring fluctuations in exchange rates. For example if it is trading with France or Germany then it would be so easy when the currency is the same. Reduced Transactional Costs Industries such as tourism would record more revenue since transacting in the same currency reduces the costs. Conversion charges would not be required and many firms would invest in the UK countries owing to this advantage. It becomes easy when businesses are done in one currency that does not need more process of conversion. Tourist would easily move across the boarders without worrying about the difference in currency as witnessed now (Verdun, 2006:98). Political Benefits The United Kingdom would brag about more power in influencing the resolutions and standards that Euro make as it would sit at the soul of Euro power considering its historical political charisma. It would feel part of the decisions and policies that are formulated by the union thereby enjoying the socio-political benefits in the group unlike now where it is disintegrated (Owen, 2012:69). Disadvantages of UK Joining Euro Lack of Devaluation Among the strict rules that are observed at the Euro are the devaluation activities. Members are not allowed to engage in devaluation in any form regardless of how much the country’s currency has fallen and cannot compete against others in the market (Fishman, 2006:232). Several countries have fallen victims to this and as a results suffered great losses in the international market since they are restricted from devaluation actions. Sometimes a country may go through economic crises that come along with shot up inflation rates and fallen development in the production industry; the only way for such countries and states to maintain competition in the market is through devaluation which is restricted by Euro (Verdun, 2006:77). This means that UK can still fall prey to the economic crises that it witnessed several years back and fail to survive if devaluation is not allowed. A demonstration of this is best witnessed in South Europe countries which continue to record deficits owing to the rigid rules in the Euro unlike UK who currently cans manoeuvre their survival through ‘twisting’ their economy through devaluation. General Monetary Policy The European Central Bank is mandated to lay down a general monetary policy that regulates all the member states that are within the Euro and those rates are not subject to change by the individual state economies. Members therefore lack the prowess to cut down the interest rate however much their economy has been smacked by an economic disaster. The states affiliated to Euro are subjects to the set interests and they lack independence in regulating their economies and adjusting to the economic changes that usually come about (Verdun, 2006:123). This may be a great drawback to the United Kingdom’s economy as those financial calamities such as that witnessed six years ago when Britain suffered a great financial breakdown cannot be coped up with. UK therefore needs policies that can help it make necessary changes within the shortest time possible to keep up with the changes. Consequently, the recovery process may be made impossible or delayed with these monetary policies when it comes to a point where both the Euro and UK economies have to be restored. Chances are high that in an attempt to evade a possibility of plunging into inflation, the European Central Bank may adjust its rates for it to sustain while ignoring the plight of UK and this can significantly injure the restoration process of UK’s economy (Charter, 2012:167). European Central Bank’s Fear of Inflation The Euro is much more concerned with evading inflation from striking it to an extent that it would increase its interest rates so as to achieve this (Verdun, 2006:177). This obsession of doing anything possible to avoid inflation has had great negative impacts on the development of its member states. The European Central Bank has elevated the interest rates so as to skirt chances of getting into inflation by the effecting influx in interest rates and this has led to negative economic effects on the states that are associated with Euro. United Kingdom would therefore suffer the increase in interests as a result of these if it were to join. To an extent, UK would allow inflation if it is rationalized in order to avoid a ‘double-dip recession.’ Priority therefore is shifted from the member countries’ economic growth to self economic defence by the European Central Bank (Owen, 2012:87). Nature of UK’s Housing Market Another reason why UK would be hesitant in joining the Euro is its nature when it comes to housing which is such that it is very responsive to the changes in the market. The ever changing interest rates in the Euro would translate to a great impact on the housing industry as dealers within this sector will record losses owing to their high mortgages (Baimbridge and Whyman, 2008:143). The customers who buy these houses therefore would feel the real negative impacts of these interests rate changes and this would generally affect the economy. Loss of Authority in Fiscal policy A problem arises when states are in deep recession and the only thing to boost them up and restore them to their previous economic status is borrowing. At the Euro, borrowing has been restricted to or less than 3% of a country’s GDP and this means that country’s that are not doing well will never rise up after a recession. This might not necessarily affect UK currently but in future if anything happens and the GDP goes down when at the same time an economic recession has hit UK then it might be so hard to climb up the economic ladder again (Baimbridge and Whyman, 2008:146). Difficult Withdrawal/ Quitting Process Once a country has been integrated into and encapsulated by the Eurozone, getting out is never an easy task. It is usually extremely hard and almost impossible to pull out of the Eurozone once a country has entered regardless of the displeasure the country could be feeling (Fishman. 2006:84). The socio-political effects such as dented image in the international outlook may lead to reduction in economic growth since investors may keep off from such countries. Exchange Rates that were set when the state joined posses even more danger as it cannot be modified when the state is pulling out and this means that doing business with other countries will be very hard. Countries usually save with Euro and when they leave they would want to change these currencies but this cannot be enabled easily. Among other factors, pulling out of Euro would be so hard that UK would really struggle if it joins (Fishman, 2006:109). Conclusion The above discussion has been demonstrated how advantageous and disadvantageous from all the social, economical and political perspectives, the move to join Euro would be. Ranging from a boost in economy in terms of tourism attraction and increased trading between the countries enjoined in Euro to political benefits forms part of those merits United Kingdom would benefit from. However, there are very many disadvantages of joining the Euro that have been manifested in those states such as Greece and Spain who have felt the real snag of entering Euro. The wrath has been suffered as a result of the strict, rigid and unfavourable policies that limit an individual state power of control and independence when it comes to regulating and adjusting to economic changes that are in most cases inevitable. It is true that joining the Euro has certain advantages but as shown, the limitations and problems that come along with entry into Euro are far much more than the advantages. In the analysis of United Kingdom, it would be witty if it continues to heed to Tony Blair and Gordon Brown’s refusal not to join the Euro. This stance is based on the counter-comparison between cost- benefit analyses. References Baimbridge, M. & Whyman, P. (2008). Britain, the Euro and beyond, Aldershot, England, Ashgate Charter, D. (2012). Au Revoir, Europe what if Britain Left the EU? London, Biteback Pub. Fishman, R.M. (2006). The year of the Euro: the cultural, social, and political import of Europes common currency, Notre Dame, Ind, University of Notre Dame Press. Owen, D. (2012). Europe restructured?: Euro zone crisis and its aftermath, London, Methuen. Verdun, A. (2006). Britain and Canada and their large neighboring monetary unions, New York, Nova Science Publishers. Read More