Britain and the euro: not for yesterday, not for today, not for ever…?

Résumé du document

The EMS's Exchange Rate Mechanism (ERM) has long been a source of political controversy, playing for instance a relevant part in the final drama of Margaret Thatcher's resignation as a serving Prime Minister. Britain entered the ERM in 1990 to exit from it in 1992 and afterward, the new Euro-politico-monetary controversy has been that of joining the future single European currency, the euro. In 1992, the Maastricht Treaty set the euro-agenda; in 1999, the euro was launched in its virtual form; and in 2002, the euro appeared in every euro-zone member's citizens' pockets as coins and notes. Joining the ERM was theoretically reversible but if Britain was to join the euro, it wouldn't be the case anymore: doing so would be violating the Rome Treaty and one can hardly imagine what unpredictable ramifications that would have. We will see in the first section what the general economical debates (I) are, I will give a brief historical overview of the EMU and expose the basic benefits and costs given before 2002. In the second section, I will give more focused economical arguments for and against entering the euro-zone regarding Gordon Brown's "five tests" (II) and more or less try to sort out economical ambiguities in the research of an "optimal currency area".

Extraits

[...] Finally, the financial aspects of currency union membership have been underplayed in the past whereas their implications appear in fact to be of high importance indeed, individual countries face the integration of financial markets and the shrinking of financial premia: this opens the way for a risk share between countries and maybe thereby an enhance of welfare. Now, for as far Britain is concerned, “Britain's reluctance to join the euro can also be traced to her experience that staying out did not damage the British economy. [ ] In fact, the British economy seams to have done better as an outsider than the economies of most of insiders. In 2002, the British growth rate is of while the eurozone's is of 0,8%. Unemployment in the UK is then of while it is of in the eurozone. [...]

[...] Britain and the euro: not for yesterday, not for today, not for ever ? Table of contents Introduction: the United Kingdom, from EMS to EMU To join or not to join, that is the question - General economical debates 1. Brief historical overview of the EMU or the hard time trying to make theory work in reality 2. Basics of benefits and costs advocated for and against joining before 2002 II- The five tests' conditions then and now - The economists' point of view 1. [...]

[...] Such volatility or instability results in real economic changes, particularly in the real exchange rate and sometimes in the terms of trade” Source: Haitzinger Karikaturen, 03/26/1998 February the 9th 1971, the Werner plan started the idea of the “European sea snake”: this European Monetary System (EMS) organized a fluctuation variation of between all members' national currency and the reference currency called the ECU (European Currency Unit that was actually a currency panier), leaving thereby a total fluctuation band between the lowest and highest European currency, and a maximal fluctuation of with the dollar. At the end of the 1980s, two theories were competing for academic attention. [...]

[...] Minford draws the list of all costs of joining. The first argument is the loss of interest-rate-setting power: a single currency implied a single interest rate (all barriers are forbidden under the Maastricht Treaty) and thereby, an exchange tax rate set by the European Central Bank to suit the whole euro zone, which may have been quite different from Britain's one. One consequence could have been, for example, a longer and deeper recession of the UK's economy if the euro zone was not recessing too. [...]

[...] Thereby, federalization will be promoted with the need of a new European fiscal regime and of a common macroeconomic policy. A single currency in the end demands a single political authority. most important lesson was that monetary union is only sustainable and irreversible if it is embodied in a political union, in which competences beyond the monetary sphere are also transferred to a supranational body. In this respect, the Maastricht Treaty provides insufficient guarantees, as budgetary policy as well as other kinds of policy (price and wage and social policy) remains the province of the national governments.” If the Euro wants to survive on the long run, further political integration will be needed. [...]