Pros and cons for the UK to join the Single currency

Résumé du document

For many people, in favour of the EMU and the sceptics of EMU alike, the single currency points is inescapably part of the political union. Looking at past history, monetary unions linking independent states of dissimilar size and power (like that of Belgium and Luxembourg today) have not been uncommon. But there has so far never been one enduring monetary union of strong independent states. This, and the commitment of a number of key EU member governments to further political integration, suggests that over time EMU could indeed favour federalism. Yet in theory, there seems to be no compelling economic reason why this should be so. The decision of the 'political union' remains essentially a matter of political choice. The crucial point is that the EU is already a federation, albeit a loose one. Adopting the single currency means, by definition, surrendering national control over monetary policy, but no further loss of national sovereignty would necessarily be bound to follow. Europe's government may well choose that course. Or they may choose otherwise. Participating in EMU does not pre-ordain that decision. The UK has three possible strategies for EMU: decide to join in a few years time, wait and see, according to the approach adopted by the Major's government, or finally decide not to join.

Extraits

[...] Yet in theory there seems no compelling economic reason why this should be so. The extent of “political union” remains essentially a matter of political choice. The crucial point is that the EU is already a federation, albeit a loose one. Adopting the single currency means, by definition, surrendering national control over monetary policy, but no further loss of national sovereignty would necessarily be bound to follow. Europe's governments may well choose that course. Or they may choose otherwise. Participating in EMU does not pre-ordain that decision. [...]

[...] These reservations probably apply also to those countries that have pegged their currency. Integration may also bring convergence. Indeed, with growing integration among Europe's economies, the significance of differential shocks may well diminish. Moreover, differences in financial structures are largely a product of different economic policies and history, and with time these will dwindle.[5] And there are signs that the British and Continental economies may be diverging, rather than converging, as the proponents had hoped. The British housing market has been a beacon of strength, and soaring home prices, opponents argue, demonstrate the need for Britain to maintain an independent monetary policy. [...]

[...] EMU is linked to the single market. What these questions challenge is the commonly held assumption, particularly in the UK, that the single market is independent of EMU. The agreement of the single market programme in 1986 marked a major step-up in the pace of European economic integration. Agreement to EMU five years later at Maastricht was for many countries the natural complement. Conclusion The British position is currently one of "wait and see." The new Labour government obviously is not as strictly opposed to membership as the previous Conservative government was. [...]

[...] Also, goods would be able to be transported for free between participating countries. Another main benefit is that a fixed exchange rate would act as an anchor against inflation. Countries such as Italy and the UK have seen this as an effective way to break inflationary expectations in the labour market, in part by the implied reduction in the discretion of national policymakers. Low-inflation countries such as Germany, however, are concerned about whether the ECB would continue to follow the conservative monetary policies of their national central banks. [...]

[...] The compliance with these tests has obviously an impact on the public opinion. EMU creates two tiers, Currie argues.[8] EMU will have enormous consequences for the future development of the EU. The distinction is drawn in two ways: first, by allowing Denmark and the UK an explicit opt-out from the main EMU arrangements; and second, by laying down explicit criteria for participation which could, in principle, indefinitely debar certain countries from participation. To some extent, then, Maastricht marked a turning point. [...]