If the UK were to join the Euro-zone the benefits would outweigh the disadvantages. Discuss. Free essay! Download now
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If the UK were to join the Euro-zone the benefits would outweigh the disadvantages. Discuss.
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| Words: 1000 | Submitted: 30-Apr-2007
N/A | Number of pages: | Filetype: Word .doc
DescriptionDiscusses the effects of 'Euro-zone' inclusion for the United Kingdom from an economic point of view. Focuses on issues such as constraints placed by the Economic and Monetary union.
The question therefore remains, would the benefits of EMU membership outweigh the disadvantages?
The problem of exchange rate fluctuation is a key argument for the entry into the euro ‘club’. The rise of the pound would make British companies trading across currencies less competitive and with the constant fluctuations occurring often budgeting when buying and selling abroad can become a difficult task. These problems seem to point toward a clear solution; a single common currency would mean the removal of this issue. However, the fact that around 50% of our overseas trade is actually with America is overlooked in this case. If we accept the terms of the EMU we may suffer at the hands of the volatile exchange rate present between the USD and the Euro.
The main problem for the UK is that if we join the euro we thereby increase our exchange risk against the dollar as the euro ‘swings around’ against it. Currently we enjoy less volatility in our overall exchange rate. What can therefore be suggested is that there is not necessarily a gain in exchange rate risk reduction in joining the EMU; it is even plausible that the exchange risk may actually increase. One can agree that having a common currency globally would bring some gains in market integration, even if modest; however the benefits of a regional currency such as the euro are debatable.
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