Ok here goes. I don’t claim to be an authority but I’ll try and give the basic arguments for and against. Apologies to all as I will probably repeat some of the points already mentioned.
Against :
Loss of autonomy.Britain would be unable to control her financial market as interest rates would be set by the European Centrak Bank. We have done this before when we joined the Exchange Rate Mechahism 1991-93(i think). Britain was in recession and needed to raise our interest rates. As they were tied to Europe, we couldn’t - result, high value of sterling, inflation and unemployment.( There were other factors but ERM was a pretty important one)
Britain’s economy is generally out of synch with the rest of Europe, due to the fact we trade more with other countries outside Europe from our old Commonwealth links. We’re more in line with America. Right now, Britain and Ireland are in a boom and the rest of Europe in recession. Therefore the interest rates set are unlikely to benefit us but the majority across the water.
The flucuating value of the euro - not proven to be stable but given time should sort itself out.
4)Admin costs from joining the euro - retraining, new tills, new software etc.
The Asymmetric Shocks Argument - not sure about the details on this but the gist of it is if something bad happens in Europe, for example, mass unemployment in Italy, the rest of Europe will have to shoulder the burden as it will impact on us too.
Ok enough of the doom and gloom prophecy.
For:
The strength of the pound has been the reason why Britain has lost a lot for manufacturing contracts - BMW and Rover and accelerated the decline of the textiles industy. Joining the euro means that British exports will be able to compete against other European exports, ensuring the continuity of the manufacturing sector.
As it will be easy to compare prices across Europe and see who is getting the best deal, prices for certain goods will be reduced - i.e. the ruckus about car prices in Britain being more expensive, it happens with other goods too - food is generally cheaper on the Continent as the Brits are used to paying high prices, supermarkets can get away with it.
Not too sure about this one but Britain’s balance of payments deficit would be reduced - I’ll leave it for someone else to explain properly, it’s all to do with buying currency to pay for imports and selling our exports.
Although Britain already gets a lot of inward investment from abroad this is likely to increase if we join the euro as we have lower non-wage costs than the rest of Europe and the whole language thing in our favour.
Anyway, to be fair we don’t really know what’s going to happen, that’s why we’ve got the wait and see policy. Chances are that if everyone joins, we will too. Denmark is deliberating too but the leading financial institution there stated that the benefits of the euro will be “small and uncertain”
With elections coming up, the government will be forced to decide a policy and it really is a political decision. Right now, we have all the required criteria to join, more than some countries already in the euro. I’ll just sit on the fence here but I’m edging towards pro-euro.
Ohh and yay! My first post completed! sorry it was so long.
HELLO EVERYBODY!
The idea that Britains politicians directly control interest rates in order to manage the economy is out of date.
When Labour was elected one of the earlier acts of that government was to make the Bank of England independant.
This was much to the annoyance of the previously ruling Tory party who said it was against common sense and all manner of disasters would occur.
The reasoning behind putting the Old Lady at arms length was that is was free from political interferance of the type that had been cynically practiced by the Tories .
It was held that one major reason for Germany’s low inflation and low interest rate economy was the independance of the Bundesbank.It is also reckoned to be a major contributary facor in post-war Germany’s success.
The US federal reserve has been independant for even longer, and yet the Tories refused see the logic of it in the UK.
After less than a year the Tories relented on their stance about the Bank of England because the evidence, even after such a short time, was already apparent. If they could not see the benefits of this before it was implemented then one has to wonder about their inability to plan and their lack of imagination.This is the party that would keep us out of Europe.
We, in the UK, are subject to all the trends in world financial affairs and have to deal with them alone, we have to respond to changes that occur wether in Japan, the US or in Germany.To that extent we do not have anything like the control over our economic affairs that some politicians woud have the UK public believe. Joining the Euro would affect us but would likely stabilise our economy which is helpful to British business planning.
There seems to be a momentum that will cause us to join sometime anyway and it makes sense to be in and helping formulate European policy so that it takes into account the interests of GB Ltd rather than stand on the sidelines moaning about how Euro policy is working against us.
One thing is sure, the Euro will not disappear and policy will be formulated with or without us.
I agree with you, casdave, an independent Central Bank is a very positive step and UK interest rates are fundamentally influenced by the international markets (they are all inter-related). My concern, however, is that within EMU, interest rates will be determined by what is most appropriate for the ‘greater good’ – i.e. the collective of member States as opposed to what is in an individual nations best interests.
As we can see at the moment, different parts of Europe (and especially the UK) are not at the same point of any economic cycle at any given moment. Harmonising the more radical factors that effect a decrease in unemployment in Germany and France are not necessarily complementary to the factors that aid an economy in which unemployment is less than an issue than is, for example, overheating the economy. Thus if France and Germany see the priority as stimulating growth, then growth it will be even if the UK economy needs to be railed back a little.
Nothing seems to win the votes of the electorate more than the prospect of more money in their pockets. If Europe is seen as hampering the UK’s economic development because of the greater good, I have trouble believing EMU will gain long-term popular support.
It is the goal of the Blair Government to synchronise economic cycles before recommending joining EMU, which is fine. However, this presupposes that economies will then stay in sync and about that I am, again, unconvinced because factors that determine the rate of a cycle vary considerably. It really doesn’t take very much - one cog can knock everything else off line.
Many of the worries that we have are already being dealt with in Europe.
Italy has a similar situation to the UK in that it has a North/South divide but in reverse.
Interest rates that work for one area do not help the other.
In the UK we can expect this too but the extent of overpopulation in the South-East is having a detrimental effect on that area too, we could do with spreading the geographic location of our major economic zone.
The City of Liverpool has declined in population size by a remarkable 1/3 since the last war and the trend is occurring throughout the whole of Northern England.The overall population has gone up.
The lack of skilled people in London at the right price is a severe problem, yet large areas of Yorkshire are considered to be among the poorest in Europe.
If Europe decides that it’s policy is to help poorer regions to catch up with the richer ones the chances are that these plolicies will help Northern England, Scotland an Wales.
Over the much longer term this might help ease some of the current problems London has to endure such as overpriced housing leadiing to high price labour .
London has been quoted as one of the most expensive cities in the world in which to set up and do business which cannot be good for the UK as a whole.
Because so much tax revenue is derived from the London zone politicians always see more London wealth as a good thing.
European financial integration must spread development more evenly or there would be the massive risk of inter-Europe migration which it would have no power to do anything about, indeed European law forbids restrictions of movement of labour within Europe.
This is why I think that a ‘Euro state’ or better a ‘Euro-Confederacy’ is a better option than the one we have now.