Outline the arguments for not joining the Euro

Topic: BusinessComparative Analysis
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Last updated: April 21, 2019

There are numerous arguments that the British government have recognised outlining their decision in not joining the Euro. If Britain joined the euro they would only be one voice out of twelve countries, meaning less influence on policies. Once Britain signs for the euro they would be joined into an irreversible agreement.

Many European countries have a desired goal of joining to create a ‘United States of Europe’ which would involve the submission of Britain’s sovereignty and subsequently their global independence as a currency.The British public have voiced their enthusiasm towards having a more localised political management system. The introduction into the Euro means that the political powers of electorates would not be as strong on a local scale if the interests of mainland Europe were to be influential as well.

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It would create almost a disenfranchisement of political power in Britain away from a local level and more towards a national level. We only have to look at the poor turnout in Britain at the elections for the European parliament to see the disinterest that people have about joining.The British people would more positively see the government pay more attention towards current needs such as the decaying infrastructure, public services, public transport system and the diminishing NHS than diverting attentions towards debates about the Euro. At the moment there is no need to join a single currency to achieve these goals. Improvements in these British interests can only develop once a strong, decisive and focused political will has been formed.We can easily look at the important factors that make Britain as successful as it is in the world economy.

In joining the Euro it would directly affect our exchange rate and interest rates, and indirectly, jobs, trade, investment and economic growth. Britain has always benefited from being able to set its own interest rates in times of economic booms and recessions in the economic cycle to control inflation and ensure a steady growth in our economy. This has been achieved solely by being able to adopt its own economic policies to suit its circumstances at that time.If Britain were to contract ourselves to the Euro we would lose this ability as the Euro policy sets a ‘one size fits all’ interest rate for all Euro member countries. Obviously the rate will be set to provide as much benefit to all members as possible.

This could mean in the future we may endure rates that are inappropriate to our phase in the economic cycle. For example, if Britain was having a period of sustained economic growth such as at the moment, and another Euro member country was in a period of recession then there would be a conflict in policies to benefit each country.Even if the interest rate was set half way between what each country needed it would take time for the country in recession to rebuild its economic growth rate, while Britain would slowly be in decline. By keeping control of our economy we are able to run it according to the needs of the British economy.

Our interest rates are set by the Bank of England, with decisions taken in relation to our own economic position. To join the Euro would involve interest rates no longer to be set by the Bank of England in London, but in Frankfurt by the European Central Bank.At the moment when the Bank of England’s monetary policy committee meets they consider what is best for the UK. In contrast if to join the Euro the European central bank would have an unelected foreign central banker, appointed by foreign governments, who will outvote the one British representative. When they discuss whether to raise or cut interest rates, they are obviously going to consider the wider European economy. Once again Britain would only be one voice in twelve, therefore not recognising their full needs as a country.In recent years the Bank of England has proved very successful at controlling inflation making Britain no longer the high-inflation capital of Europe, but having a similarly low level to Germany and France. Britain’s economy is so out of step with other mainland Europe countries that it would only be to our disadvantage join.

One reason why our economy is out of step to that of mainland Europe is partly because we have much closer ties to North America than they do. More than half our trade goes outside Europe, and most of our trade is done in dollars.Over the past three economic cycles the British economy has been seen to be more similar to that of North America than with Europe. Evidence of this is that since the pound fell out of the exchange-rate mechanism in 1992, it has remained relatively stable against the dollar, but very volatile against European currencies. However, the euro has been very volatile against the dollar, so locking the pound to the euro would actually mean more currency instability for the majority of exporters, not less. In contrast, countries on the European mainland do a higher proportion of trade with each other, and their economies are far more integrated.In any case a floating exchange rate is one of the economic safety valves- along with public spending and interest rates- that can help it adjust in the global economy. Having an independent exchange rate allows us to compensate for differences in inflation and productivity, and can help boost our economy if in recession.

One of the reasons that the British economy has been able to pull itself out of recession on a number of occasions is because of our relatively low taxation and light regulation. This is one of the reasons Britain attracts more inward investment than France and Germany combined.If we joined the Euro we would only lose this competitive advantage. By keeping the pound we can keep control of our economy, maintain our stability and protect our business environment. Despite these arguements there may be many implications against Britain if they were not to join, of which many would quite easily be seen to be in favour of the Euroland countries. One key disadvantage that Britain will see if not to join is the inability to conduct trade in the same currency and the affects that the exchange rate mechanism will have on the trade they do carry out.Euro countries will find it easier to predict, plan and subsequently budget for future activity. Britain, however, if to stay out may find it difficult to predict future prices of goods between the UK and Euro countries due to the potentially volatile exchange rate between the pound and the Euro.

Even at present a British company selling goods or services to a Eurozone customer runs the risk of eventually receiving payment in a currency which has devalued against the pound.If Britain stays out it will be losing money through trade, and be at great disadvantage against competitors who trade in the same currency. The fluctuations and decreases in values in trade coming from the Eurozone to Britain will obviously a strong deterrent for foreign investment. Although inward investment in Britain has not yet be affected by Britain’s non-membership of the Euro, it will be a different matter if Britain states it does not intend to join. The consequences of non-membership will result in the diversion of trade away from Britain and towards Euroland countries.It has often been the case in the past before the Euro currency began that investors would be reluctant to invest in other countries companies due to the change in currency and a potential loss in value through the exchange-rate mechanism. The founding of the Euro will open the door to investment across all Euro countries. Whether Britain wants to be left out of it will only be to our disadvantage.

Euro countries will economically progress as a team due to a more integrated trading pattern between them, resulting in greater competition between the different countries companies and providing a greater incentive to invest across boarders.Britain on the other hand will be left on the edge of Europe with a loss of support and trade from its closest trading allies. To conclude with I would say that the positive aspects of deciding to stay an independent currency would be a sensible decision in an attempt at keeping the British economy as stable as it is at present. I think that joining a ‘one size fits all’ interest rate could only do more harm than good, especially on this large a scale of an operation.

If other Euro countries were to be in recession and interest rates were fixed to aid these countries then it would be our economy that would suffer as a result. The time and effort involved in changing currency will be wasting our attentions towards more vital aspects that need attending too such as the NHS. If we were not to join though we may be left out of what could be a globally dominating currency in future years to come. The Euro can only really strengthen over time, especially with internal trade between Euro countries made easier with the single currency.

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