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Published byDebra Andrews Modified over 8 years ago
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What is the euro? the basic monetary unit of most members of the European Union A single currency for 12 of the European Union's 27 member states. The participating states are known as the eurozone.
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AIMS: Define the ‘euro’ Identify the current UK position Identify reasons for and against the UK joining a single currency.
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Britain and the Euro – The Current Position (2009) Britain is outside of the Euro Zone It has an opt out from the single currency No entry likely in the coming years
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Back to Basics on the Euro A single currency requires a common interest rate for the Euro Zone – i.e. a common monetary policy 16 member nations are inside the Euro Area The European Central Bank (ECB) sets official interest rates to meet an inflation target of 2%
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http://www.blinkx.com/watch-video/future-of- the-euro-crisis-in-greece-ireland-and-other- nations-challenges- ahead/bLgJ3q6KUAYQUPJAniDGcw http://www.blinkx.com/watch-video/future-of- the-euro-crisis-in-greece-ireland-and-other- nations-challenges- ahead/bLgJ3q6KUAYQUPJAniDGcw
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Case for Entry into the Euro
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Benefits of Entry The Euro is important in realising some of the gains from a functioning single market (1) Potential Gains for consumers – Lower prices because of increased competition/ greater price transparency (this is more likely with easily transportable goods) – Reduction in the transactions costs of travelling within Europe (e.g. costs of currency exchange) – Easier to live and work in different EU countries
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Benefits of UK Entry (2) Potential gains for businesses Invoicing can be done with one currency Lower transactions costs – some people argue that staying out of the Euro is equivalent to exporters facing a tariff when they trade inside the EU Gains for the tourist industry in attracting overseas visitors
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The Case for Staying Outside the Euro Zone
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Disadvantages (1) Changeover Costs from joining the Euro: – Costs of changing accounting systems – Menu Costs (vending machines, catalogues, franking machines, postage – Installation of new payments systems (2) Higher prices – Potential loss of consumer welfare if suppliers increase prices when converting from sterling to euro
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Case Against Entry (1) Entering the Euro means losing an instrument of policy adjustment – A “one-size fits all” monetary policy may work against a country if their cycle is not convergent with Euro Zone – Retaining the option of making an exchange rate adjustment is useful (2) Fiscal Policy constraints – Limits on government borrowing
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