Discuss the view that Britain’s economic interests would be best served by joining the European single currency
The case for joining the euro is highly ambiguous issue as there are strong campaigns for and against UK involvement. I feel that in the long run that the effective loss of domestic monetary policy control will be a small price to pay compared to the economic costs of staying out of the Euro.
Firstly, and importantly, If the UK does not join the Euro then the level of trade with our biggest trading bloc, the Euro Zone, will be threatened due to a lack of price transparency. The much heralded belief is that price transparency results from a single currency as the task of converting currencies is alleviated, hence bringing about a vast multinational bloc of comparative prices which can now be easily taken advantage of through increased use of internet retail and hence increases the benefits of joining the Euro. ... Hence, joining the Euro would bring about greater productive efficiency to British firms leaving spare capacity for growth. ...
Such competition brought about through the UK joining the Euro Zone trading bloc would also result in price convergence. This is another important argument for the UK joining the Euro. Already prices have begun to converge within Euro-Zone nations with the variance being just 6. ... Being able to see prices in the same Euro denomination will allow consumers to instantly see price differentials. This greater price convergence within the Euro Zone will allow it to become a breeding ground for well organised efficient business. ... Greater stability will again be brought about through joining the Euro as greater price stability can be assured through the creation of a market with more elastic demand as consumers will expect a price level around that of the converged price.
Similarly, with regard to trade, the presence of the pound currently makes foreign buyers reluctant to enter purchasing contracts with UK firms as fluctuating exchange rates indicate instability as with a high value pound, increasing expense compared with Euro Zone companies could arise. If the UK joins the Euro then the issue of exchange rates is removed and hence confidence amongst purchasers and investors will be heightened due to increase stability surrounding price. ... The marginal efficiency of capital curve, due to greater business confidence, will in-fact shift to the right if the UK joins the Euro due to the issue of fluctuating exchange rates being removed.
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