Presentation on theme: "The United Kingdom & the EU (the Single Currency)"— Presentation transcript:
1 The United Kingdom & the EU (the Single Currency) Introductiona) Why did not the UK join the Single Currency?b) What advantages and disadvantages of the UK joining the single currency?c) Actual news & opinions about a membershipin the single currency.Conclusion
2 The United Kingdom & the EU (the Single Currency) IntroductionOn 2nd May 1998 the European Commissionin Brussels decided the membership of 11EU-countries to the Euro-Launching on 1st JanThe Euro-11-Zone includes:300 million people19,4% of the World-GDP18,6% of the World-Trade
3 Timetable 1992 - Treaty of Maastricht Bank notes issuing rd stageThe national currency is not valid!!TimetableTreaty of MaastrichtFounding European-Monetary-InstituteEuropean Parliament settled a scenario inMadrid - these are the following three stages:Mai Decision about the participants - 1st stageStarting date nd stage
4 a) Why didn’t the UK join the single currency? 1) The convergence criteriaAn inflation rate that is no more than 1.5 % higher termthan the average of the three lowest inflation rates.A long term interest rate that is no more than 2% higherthan the three lowest interest rates.
5 A government budget deficit that is no higher than 3% of GDP.And government debt that is no higher than 60% of GDP.
6 2) Why did the UK opt out? i) Economic obstacles ii) Political and social obstacles
7 i) Economic obstacles The British economy is out of synch with the continental cycle.The UK does not have a high degree of interdependence in trade with the European countries(ref. table).The sterling is overvalued.
8 ii) Political and social obstacles The EMU (European Monetary Union) is currently deeply unpopular with ordinary people.The British people are reluctant to enter in the singlecurrency because they don´t want to lose their identity.Another reason is their reluctance to suffer thepredicted economic damage of the single currency.
9 b) What advantages and disadvantages of the UK joining the single currency?
10 1) Economic consequences of the UK opting out i) Disadvantages of opting outThe country, like other outsiders, will be very muchaffected by the policies adopted by the EMU members.All decisions which relate to monetary and exchange ratepolicy will be to reflect primarily the interests of the EMUparticipants.Its trading partners would dominate decision-makingin key areas of EU policy.
11 These partners would acquired a competitive advantage as a result of EMU’s success.The gain in competitiveness of the EMU group would,other things being equal, be equivalent to a loss ofcompetitiveness among the countries outside.Then, it will lead to :Higher risk premium on interest ratesGreater exchange rate volatility Lower rates of investment and growth Higher unemployment and strains on governmentfinances.
12 ii) Benefits of opting out : The UK, like other “outs”, will be shielded from thecounter-cyclical fiscal policy instability.It will also be spared the inevitable political frictionswhich will arise in the process of adjustment to a singlemonetary policy.
13 2) Consequences of the UK joining (in short or long term). i) Costs or disadvantages of joiningTotal costs for a business = £ 20 m costs from strategic changes to maximise the businesscompetitiveness in the new Euro-zone environment. Costs in changing their systems in order totrade in Euro Costs of transferring their base accountingsystems to the Euro
14 No transition period for the UK Cost of the loss of independence in interest ratedecisionsThe UK, due to being a long-term Outsider, would beunlikely to have any serious influence on measuresadopted by the EMU members.
15 Principle Advantages for the 11 members of the Euro-zone Abolition of barriers to a single European marketThe domestic market needs a single currency i.e.: currency crises in autumn 92/summer 93Retirement of operation costsNo exchange rate losses for companiesi.e.: Germany lives up to 60 % from EU exportPrice transparencyLong-term economic stability
16 ii) Advantages of joining Increased competitionGreater specialisation and trade within the Euro-zoneEuro will bring more integrated European financialmarkets.11-Euro-zoneCountries = save % of EU GDP p.a.(transaction costs).The UK = only 0.2 % of EU GDP p.a.,because the UK trade with other EUcountries is below average.Cqs : Higher growth in the Euro-zone
17 c) Actual news & opinions about a membership in the single currency.
18 How could UK join the s.c.?The Government’s National Changeover Plan shows thatTony Blair aims to speed up the process. The UK canprepare more quickly than the first wave entrants managed.The Government’s National Changeover Plan shows thatTony Blair aims to speed up the process. The UK canprepare more quickly than the first wave entrants managed.Treasury sources are making clearno decision until after the next electionthe document gives the green light to speed up its preparationsthat a decision could be made as late 2001, withBritain possibly joining economic and monetary union by 2003
19 Britain could switch to Euro in 40 months ReferendumDecisionUK JoinsEuro CashEnd4 months24-30 months6 months40 months