There was a time when joining the Euro was a big issue. Recently, it seems to have slipped from the public’s attention, and there seems little enthusiasm for joining. For quite a few years opponents could argue, with good reason that the UK economy was doing very well without being a member. However, since the economic slowdown, I have had a few people asking me whether it is now a good idea for the UK to join.
I would argue that a recession makes it even less desirable for the UK to join.
Firstly, whatever problems the UK has, they are not caused by having its own currency. The Euro economy is also entering a recession.
Secondly, in a recession, it is vitally important the UK is able to have independence over its monetary policy and cut interest rates if necessary.
The major disadvantage of joining the Euro is that the UK is required to have a common monetary policy. In other words UK interest rates will be set by the ECB depending on what the ECB think is good for the whole Eurozone area.
This means that ECB interest rates may be unsuitable for the UK economy. For example, if the Euro economy recovers before the UK economy, interest rates may increase too quickly and harm the UK’s recovery.
The nature of the UK housing market also means that the UK is very sensitive to interest rates. In the UK, many have high variable mortgages. This means a small increase in interest rates has a big effect on consumer spending. Therefore, it is even more important that interest rates are not unsuitable for the UK economy.
If interest rates are wrong it can either cause an inflationary boom (or house price boom) or a deeper recession. These potential negative effects mean that any small advantages of lower transaction costs are easily outweighed.
Essays on the Euro
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“For example, if the Euro economy recovers before the UK economy, interest rates may increase too quickly and harm the UK’s recovery.”
But the Uk would be in the Euro economy so the argument is silly.
quoting glenn
If the eurozone recovered earlier than the UK. The ECB could decide to increase interest rates too early for the UK to be ready. However this policy would be undertaken because it would be in the general interest of the eurozone.
If the UK joined the Euro it doesn’t mean it would come out of the recession at the same time as every other country in Europe, every country is different.
So if the UK was still in recession it cause such problems as discussed above
Look at Greece and similar countries to see examples that a currency like the Euro is susceptible to.
quoting Nas
Looking at Greece I see that the UK is doing even worse. Therefore I have no reason to believe that keeping pound helps a lot to the British economy. In fact I am tempted to think taht the reverse is true.
quoting everyone
I think Michael is correct.
Greece is just a minor setback, Germany, France, Portugal & Italy haven’t been as affected as Greece at all.
And what about countries which have benefited greatly? Slovakia and Slovenia have, and would be in a worse position now if it wasn’t for the Euro.
We are already part of the EU, most people don’t want to leave. So what reason do people have for not joining the Euro? The benefits are much greater than the bad points.
The polls are also incorrect, they’ve changed. At first, it was 40% pro-Euro, 50% anti Euro and 10% unsure. That was how simple the polls were.
In the recent 2009 polls, the 3 categories were different, 1) we should join euro 30%
2) NO CURRENCY CHANGE 55%
3) unsure 15%
The fact is, most people in category 2 are unsure. When you aren’t sure about something, people think it’s better to stay the same until you know properly.
But why are people unsure then?
Most people are stuck between pro-€ (to be with the rest of Europe) and pro-£ (to be with British tradition).
See that, it’s tradition that’s holding us back.
People should just make up their mind, I don’t know about them, but I believe we should join the Euro.
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