Single European Currency? Essay, Research Paper

There is a rather large debate going on in the United

Kingdom. This debate asks whether or not we should opt to join the single

European currency, just as many other European countries such as France and

Germany have. There are two sides to this argument, both being very strong and

convincing.The main advantage of the single European currency is the

fact that it would cause prices to be greatly reduced. At the moment, Great

Britain has been given the label of ?Rip-off Britain? due to the frequent

extortionate prices which we are charged for goods compared to other countries.

The single European currency would allow trading to take place much easier,

without the need for exchange rates and currency commission. Easier trading

would mean that some countries can specialise in one good or service whilst

other countries specialise in others. This would mean that there are more goods

available to consumers at a lower price, and lower prices means people have

more money to spend on other goods, so there will be a higher standard of

living. Also, goods would be able to be transported for free between

participating countries. So by joining the European currency, there would be

more trade available and therefore a wider choice of goods and services to

choose from. Another main benefit is that a fixed exchange rate would act

as an anchor against inflation. Countries such as Italy and the United Kingdom

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 single European currency?s ease of trade would allow the

easy establishment of Trans National Corporations (TNC?s), which in turn would

create more jobs for more people on a greater geographical scale. This would

mean that benefits would be lowered, as not as many people need to claim them.

The money saved from benefits would mean that more money is available for

public spending, so public services, such as the NHS would be able to offer

more quality services.The above arguments seem to convey a very positive view of

the single European currency. But on the other hand, there are many reasons why

people believe we should not participate.Firstly, looking at the moral aspects of the argument, the

loss of our own currency would be a loss of our heritage, our independence, and

our freedom. Many people do not want to see the face of the Queen banished from

the head of our coins to be replaced by something unfamiliar and European. The

British nation has a reputation of independence ? being our own little island

away from mainland Europe. Many people believe the Euro will take that away

from us.Also, many people are sceptical about trusting foreign

countries in this matter. We have been deceived before, and it could very well

happen again. The recent scandal of BMW selling off Rover, after they promised

not to is a classic example. Others include World War One, World War Two and

the more recent political scandal involving Helmut Kohl and also the ban on

British beef.Another reason against the single European currency is that

we would lose a great deal of democracy. Rather than our government controlling

our money, foreigners in Brussels would be, who have not been elected by us and

are complete strangers to us. Each country joining the single European currency must meet

the convergence criteria. One part of this convergence criteria is the fact

that a joining country?s government borrowing deficit must not be more than 3%

of that country?s GDP. But in Great Britain, the borrowing deficit is 6%, and

the reduction of this figure would require public expenditure to be cut by an

astronomical £18 billion, or an alternative would be to raise income tax 9p to

33p per pound and/or VAT from 17.5% to 24.5%. The public would definitely not

appreciate these cuts. It is estimated that these cuts would raise unemployment

by approximately a minimum of 500,000. This would mean more people claming

unemployment benefits. And who pays for this? We do: the taxpayers.The question on many people?s minds is why change? We have

managed fine up to now, so why bother changing when the pound is strong and the

Euro is weak? Also, it is not really a massive loss if by not joining the

single European currency we are preventing trade with the rest of Europe. There

are alternatives: USA and the commonwealth can provide many more goods and

services than Europe. A single monetary policy cannot deal with the differences,

divergences and cyclical variations in the European economies. National

currencies provide an adjustment mechanism, and allow governments to use interest

rates to respond to events. A single European currency would remove these

options. Instead, a single European interest rate, set by the European Central

Bank in Frankfurt, would apply indiscriminately to the whole single currency

area. This creates the problem of how a participating country could adjust to a

shock or economic development specific to that country.? Simply taking a look in the media, it is true to say that

the Euro has met its first hurdles. It is failing in many aspects including being

very weak against the pound. So would the people of Britain be wise to join a

system which is already, within its first year of real operation, facing flaws?

I am sure the answer is no.There is great variation in the economic cycles of the

European countries involved in the single currency. The unification of these

nations under the banner of a crisp Euro note would be confusing for many

countries and it would be a long and arduous process until they were all

similar. This process would most probably involve high prices, high taxes and

increased unemployment for a great deal of time until these problems are

rectified.? So, as you can see, there are two sides to this debate, both

providing strong arguments. But, if the British government is to adopt a

sensible approach to this matter, it should steer well clear of the menacing

demon that is the Euro. The main problem being the long term implications of

the single European currency having yet to be determined. In my opinion, the

question of monetary union has been more focused on political reasons rather

more important economic reasons. The question on everyone?s mind is: ?But isn?t

a European single currency inevitable?? The answer to that is no. The world has

survived without one and Europe would be better placed without one. There are

serious problems that Europe faces, it?s just that the "Euro" isn’t the serious answer.