The following report will look at the advantages and disadvantages for businesses and answer the question as to whether the UK government should proceed with the decision. From Single Market to Single Currency: Evaluating Europe’s EconomicExperiment. 2007. As the debate about the UK adopting the euro is consistently in the news and is a much talked about issue due to the economic and political implications, there will be a number of web based sources that will be explored such as; These amongst other online sources will also give different opinions on the question asked and will be useful as a source before further reading or research is carried out. Becoming a member of the EU does not come cheap. The interest rate of the Bank of England and other central banks is known to be volatile. As the labour market is more flexible in the UK than it is in others in the euro and UK firms have more independence with employment, joining would be detrimental for the firms as the cost of production would increase and unions would have more power (S-cool.co.uk, 2014; Brugesgroup.com, 2014). Smaller ones have the advantage of being backed by Europe's powerhouse economies, Germany and France. European economic and monetary integration, and the optimum currency area theory. 1482 Words 6 Pages. UK Businesses may also have to drive down prices due to the combination of improved availability of information and price transparency. Due to the fluctuating exchange rates, businesses would have to take into consideration either export prices being higher or companies being discouraged from exporting within a single market. In present times it would seem an unpopular decision. Irons, J. S. and Colander, D. C. 2002. Advantages of joining the euro: 1. To fully assess and answer the posed question the following sources will be useful; These sources give good background on the problem and also give different opinions as to the pros and cons associated with adopting the euro. [online] Available at: http://www.brugesgroup.com/mediacentre/index.live?article=74 [Accessed: 10 Feb 2014]. The euro also supports cross-border investments within the eurozone. Those who support the single currency must consider that loss of control over monetary and exchange rate policy may weaken national economic management which, looking at previously strong economies like Germany will have a large impact on trade and business (CenuÅŸe, M, & Drigă, 2010; Baimbridge and Whyman, 2008), Ultimately there are many factors that need to be considered should the UK decide to adopt the euro or stick with the sterling. The main worry is over the UK losing control over its own economy and independence. Its official currency is the euro. Before the euro, successful companies in countries with weak currencies still had to pay high interest rates. Baimbridge and Whyman (2008) quote Healey (2000: 19–20) who states that ‘while the benefits are significant, cumulative over time and reasonably uncontroversial, the costs are much more uncertain, widely exaggerated and almost certain to diminish with the passage of time’. The British Retailing Consortium estimates that British retailers will have to pay between £1.7 billion and £3.5 billion to make the changes necessary (Baimbridge and Whyman, 2008). Travel was made easier by removing the need for exchanging money. Geoff Riley FRSA has been teaching Economics for over thirty years. The cost of transitioning 12 countries' currencies over to a single currency could in itself be considered a disadvantage. [online] Available at: http://news.bbc.co.uk/1/hi/special_report/single_currency/25081.stm [Accessed: 8 Feb 2014]. Therefore by adopting the euro the UK will have more opportunities for cross-border trade (Ec.europa.eu, 2013; CenuÅŸe and Drigă, 2010). How the euro benefit us all. Although stocks also have exchange rate risks, the impact on bonds is far greater because of their lower volatility. Due to the number of advantages such as the stimulation of trade and disadvantages such as economic instability, the decision for the UK to adopt the euro is a big economic and political debate at present which will affect businesses and the public in many ways. With the various forums online and the above sources, there will be a large amount of information. Question: Outline The Advantages And Disadvantages Of The Euro. European Economic and Monetary Union (EMU) Definition. Because there are fewer travel restrictions in place, the number of people who can make their way across a border without documentation or with a false ID continues to rise. London: British Chamber of Commerce. Kern, D. 2002. The core text; International business by Wall, S., Minocha, S. and Rees, B. and Macroeconomics By Edward Gamber and David C Colander are good places to start as they give a good background on international business and the different factors that effect businesses looking to expand on an international level. The U.K. was first forced to raise interest rates and eventually pushed out of the ERM on Black Wednesday in 1992. 2013. In contrast, others suffer from prolonged economic downturns and high unemployment. The currencies of countries with larger economies tend to be more stable because they can spread risk more effectively. On the other hand, the U.S. state of Florida can turn to the rest of the United States to help rebuild after a hurricane. The UK is also known to have a very successful labour market and within a single currency this would be highly beneficial not only in that the inflation rate will go down but also as competitiveness will be sustained (Mongelli, 2008). Rickard, S 2002, ‘E-Day: the Impact of the Euro on UK Business’, Credit Control, 23, 1, p. 14, MasterFILE Premier, EBSCOhost, [Viewed 9 February 2014]. European Union is an economic and political union established to support 28 member states. Let us now have a closer look at the advantages and disadvantages for already existing members of the EU. As a result, the strong U.K. economy of that era experienced excessive inflation. Between 2014-2018, the number of attacks classified as terrorism increase… Originally, the euro was an overarching currency used for exchange between countries within the union. The online scanning system matches your work against over 5 Billion online sources within seconds. The euro was created because a single currency offers many advantages and benefits over the previous situation where each Member State had its own currency. The disadvantages must be recognized, however, and then proactively removed from the equation to prevent loss of life, reduced economic influence, and other unforeseen issues that may arise. The high growth country ought to have high interest rates to prevent inflation, overheating, and an eventual economic crash. Advantages: Eurodollar market has lower interest rates because of less regulation, also financing is cheaper for borrowers, as the market goes by interbank rates Disadvantages… While in the second part I will show some light on the current heated debate about UK joining the Euro Zone. This will affect SMEs, which will not benefit directly from the adoption of the euro and they could potentially force marginal firms out of business and give countries that are not in the euro a competitive advantage. [online] Available at: http://econsguide.blogspot.co.uk/2009/02/why-is-uk-considered-wise-to-choose.html [Accessed: 9 Feb 2014]. The advantages and disadvantages of the European Union show us that a greater good can come from such a structure. There are now 13 nations who have joined this treaty where in which they have adopted a common currency between them that is EURO. Discuss The Difficulties Faced By The European Central Bank In Managing Monetary Policy In The Eurozone, Both Before And Since The Euro Crisis. Brugesgroup.com. People within each nation continued to use their own currencies. It is easier to cross borders in Europe today because of the EU.The Schengen Visa might make it easier for the average person to travel throughout Europe and its controlled territories, but it can also become a security nightmare. This might lead to lack of confidence in the economy. This would be more beneficial to medium sized UK businesses as they cannot currently take advantage of operating in the euro-zone and gaining profit like Shell and Vodafone and other larger companies. The single currency will also allow consumers and businesses to compare prices which will help reduce the costs of raw materials and further make their customers happy with lower prices (Baimbridge and Whyman, 2008; Ec.europa.eu, 2013). Baimbridge, M. and Whyman, P. 2008. 2014. The European Central Bank (ECB) is the consolidated central bank of the EU, coordinating the regions monetary policy efforts. Economics Essays: Why the UK will never join the EURO, Reducing the uncertainty affecting the profitability of international transactions, Better use of the common monetary reserves, Reducing losses due to different rates of inflation within EMU member countries, Improving macroeconomic management and cooperation, Improving macroeconomic stabilisation within EU Member States, Loss of income resulting from issuing currency. Price transparency. The Economic and Monetary Union (EMU) was established to allow the European economy to function well bringing more jobs and greater prosperity for Europeans (European Commission – Europa, 2011). Econ.economicshelp.org. 2011. Even with its many benefits, Member States, and those planning to become a member, have to seriously consider if the cost is worth it. On January 1, 1999, the European Union introduced its new currency, the euro. The majority of British people are against Britain joining the euro. By far, the largest drawback of the euro is a single monetary policy that often does not fit local economic conditions. 2010. International business. Topic: Analyse the main advantages and disadvantages of European Union enlargement for a) existing members and b) for applicant countries. Even worse, many nations closed their borders to each other. S-cool.co.uk. [online] Available at: http://www.currencysolutions.co.uk/euro/the-unpredictable-character-of-british-pound-and-the-euro-exchange-rate [Accessed: 9 Feb 2014]. Given the enormous influence of the euro currency on the global economy, it is useful to look closely at its advantages and disadvantages. Study guide [for] Macroeconomics [by] David C. Colander, Edward N. Gamber. Advantages and Disadvantages of the EURO -Business-, Consumer- and Public Sector perspective Course Economics Author. It provides members with greater influence on international matters. eBook Collection (EBSCOhost), EBSCOhost [Viewed 9 February 2014]. Britain, the Euro and beyond. What Are the Advantages of the European Union? The euro system has created a large zone within Europe in which various countries all share the same currency. The fact that there are political and economic arguments makes it harder to come to a simple decision, and although it appears that the benefits are great, the costs need to be carefully considered as businesses need a strong economy to survive and flourish. Joining the euro would mean that the UK would have to adhere to new labour rules which in some cases govern how employees are hired and fired (Baimbridge and Whyman, 2008; Econ.economicshelp.org, 2007)). What are Advantages and Disadvantages of Euro zone Membership? 2014: A-level Economics The Euro Revision – Should the UK Join the Single Currency? The euro was created to promote growth, stability, and economic integration in Europe. This will be beneficial for investment and growth as the strength of the currency will improve (Ec.europa.eu, 2013). Influence on international matters: Joining the EU member states […] Due to the number of advantages such as the stimulation of trade and disadvantages such as economic instability, the decision for the UK to adopt the euro is a big economic and political debate at present which will affect businesses and the public in many ways. In theory, the euro should help countries that adopt it to support each other during a crisis. He has over twenty years experience as Head of … Looking for a flexible role? 18th Jan 2018 The costs of the UK adopting the euro seem short term, such as the costs of change and the loss of income due to issuing the new currency. Here are the current advantages and disadvantages of the European Union to consider and discuss. This single currency system has one major advantage, as … for and against the UK joining the European single currency. The advantages and disadvantages of joining the European Monetary Union (Emu) will vary from country to country, and are difficult to predict. The issue of monetary policy has been in the center of all debates from the early establishment of the Euro … [online] Available at: http://ec.europa.eu/economy_finance/euro/ [Accessed: 9 Feb 2014]. In fact, the euro caused precisely the opposite of standard economic policy to be implemented during the European sovereign debt crisis. At the moment the EU is made of 27 member countries with a combined population of over 500 million. This article provides you with the pros and cons of EU to evaluate before buying a membership. However, the euro's considerable flaws became more apparent when it was tested by a series of challenges early in the 21st century. The coronavirus crisis tested mutual support within the eurozone in 2020. The euro is the single currency established in 1999, currently shared by 18 countries of the European Union’s Member States (Ec.europa.eu, 2014). The first stage of the euro was the European exchange rate mechanism (ERM), under which prospective future members of the eurozone fixed their exchange rates to the German mark. EURO – ADVANTAGES AND DISADVANTAGES 65 But the euro is not a perfect instrument. Portugal, Italy, Ireland, Greece, and Spain all faced high debt, high interest rates, and high unemployment. … The main benefits of the euro are related to increased trade. It is common for parts of the EU to be prospering, with high growth and low unemployment. [online] Available at: http://ec.europa.eu/economy_finance/euro/why/business/index_en.htm [Accessed: 8 Feb 2014]. Also less volatile interest rates will allow businesses to borrow at cheaper rates and also invest more confidently in the long term (Ec.europa.eu, 2013; Irons and Colander, 2002). 1997. According to the KPMG report, an estimated 3,000 firms face total costs of up to €56.5 million (£35.8 million) (Baimbridge and Whyman, 2008). Like the Federal Reserve in the United States, it oversees the nation's banking system and monetary policy. Disadvantages and Advantages of a Single Currency 1679 Words | 7 Pages. European Union Advantages And Disadvantages. 2007. This time, monetary policy was too tight rather than too loose. However, the European Central Bank's independence meant printing money was not an option for eurozone governments. Economics Essays: Why the UK will never join the EURO.. [online] Available at: http://econ.economicshelp.org/2007/03/why-uk-will-never-join-euro.html [Accessed: 9 Feb 2014]. Ec.europa.eu. The only constant was that the euro continued to work in favor of Germany. A-level Economics The Euro Revision – Should the UK Join the Single Currency? Benefits of joining the euro area . News.bbc.co.uk. More importantly, France and Germany supported a recovery fund worth over 500 billion euros. Mongelli, F. P. 2008. The European Union (EU) is a group of countries that acts as one economic unit in the world economy. European Commission – Europa. Viper is a quick and easy way to check your work for plagiarism. 2014. For example during the economic downturn in 2008, many economies of countries within the euro, such as Spain, could not stimulate their own economy by devaluing their currency and therefore increasing exports, this saw their businesses and economies failing and finding it difficult to recover (Historylearningsite.co.uk, 2013; Baimbridge and Whyman, 2008). 234 (IMF’s Occasional Papers) by Susan Schadler; Britain and the European Union – Frequently Asked Questions By Stuart Notholt; Britain, the Euro and Beyond by Baimbridge and Whyman. ... Now you have seen the advantages and disadvantages for the joining counties. The Bundesbank is the central bank of Germany. A single currency should end currency instability in the participating countries (by irrevocably fixing exchange rates) and reduce it outside them. In theory, countries with high unemployment do not need to worry much about inflation because of the availability of the unemployed to produce more goods. European Economic and Monetary Integration, and the Optimum Currency Area Theory by Mongelli, F. P. Ec.europa.eu 2014; The euro – European Commission. The European Union is an integration of states that have different beginnings, political systems and economies. By joining the EU, UK businesses will be open to price transparency and reduction of information costs. This will be especially troublesome for products that are accessible to cross border trade and will be reinforced by internet shopping (Baimbridge and Whyman, 2008). The primary risk in lending across borders was the currency risk, instead of default risk. Pros: 1. As regards the benefits of euro area membership, these can be seen from two perspectives: from the perspective of the individual country and from the perspective of the euro area as a whole. I will discuss these advantages and the disadvantages in the first part of my essay. Its main drawback is that it is a fiduciary currency. Although the arguments for adopting the euro seem strong, some of the positives can be changed into points to support the UK keeping the sterling. However, many of the holdouts peg their currencies to it in some way. A currency union is where more than one country or area shares an officially currency. In the 1990s, Germany pursued a looser monetary policy to deal with the burdens of reunification. For example, even a prosperous small Caribbean country can be devastated by a hurricane. The classic Keynesian solutions for these problems are entirely different. VAT Registration No: 842417633. The prices of most debt instruments are so stable that exchange rates influence returns far more than interest rates or credit quality. This will help to improve economic welfare and also remove the risk of unforeseen exchange rate revaluations or devaluations (Historylearningsite.co.uk, 2013; Irons and Colander, 2002). The Unpredictable Character of British Pound And The Euro Exchange Rate. As a result, foreign currency bonds have a poor risk-return profile for most investors. See the answer. Registered Data Controller No: Z1821391. Reference this. News.bbc.co.uk. In order to achieve the goals identified above, a variety of different sources have to be explored. Based on the findings above the general benefits for the UK businesses adopting the euro are as follows; The costs for UK businesses on the other hand are as follows; Comparing the two lists, it would seem that it wold be best for the UK to adopt euro as businesses would benefit from the lower transaction costs, lower cost of capital and better price transparency which could lower invoices and costs of raw materials. 2011. Problems with the policies. A single currency is when a number of countries join their currencies together into one single currency. | S-cool, the revision website. As a result, the U.S. dollar is one of the most stable currencies in the world. What are the arguments for and against joining the Euro. 1. Inefficient firms will suffer mostly from this and profits will be reduced due to higher levels of competition. Or, the fiat currencies are not based on a real standard, but on the simply trust of people. 1. The implication if UK joins the EMU has both advantages and disadvantages. Currencysolutions.co.uk. Axel Jörn (Author) Year 2015 Pages 23 Catalog Number V293971 File size 1882 KB Language English Tags Euro economy Eurozone Quote paper. BBC News | Single currency | Pros and cons. Labor and goods can flow more easily across borders to where they are needed, making the whole union work more efficiently. The euro is still not universally adopted by all the EU members as the main currency. Company Registration No: 4964706. With a single currency the European Central Bank will focus on economic conditions across the board helping to lower the interest rate. On the downside, the euro was blamed for overly rigid monetary policy and accused of a possible bias in favor of Germany. The euro allows these weaker countries to enjoy lower interest rates. The European single currency is a common legal tender currently used by 17 of the 27 member states of the Euro zone. Ec.europa.eu. Any opinions, findings, conclusions or recommendations expressed in this material are those of the authors and do not necessarily reflect the views of AUEssays.com. The Advantages of the European Union 1. S-cool.co.uk. There are many benefits to adopting the euro for the UK and for businesses alike which include eliminating risks and cutting costs. This problem has been solved! The first significant advantage which membership to the Euro brings is the fact that it will eliminate transaction costs of converting national currencies, with savings estimated at around £2 billion annually. The Pros And Cons Of Joining The Euro Investors in countries using foreign currencies face significant foreign exchange risk, which can lead to an inefficient allocation of capital. The European Economic and Monetary Union (EMU) refers to all of the countries that have adopted a free trade an monetary agreement in the Eurozone. Typically, there would be no solvency fears for governments under a fiat money regime because the national government could order the central bank to print more money. So ultimately it seems that the higher capital costs and an overvalued exchange rate are the results of not joining the euro as well as receiving fewer European visitors (Rickard, S 2002). Not joining the Eurozone would also have its costs, internationally, because countries that gained their EU membership, similarly committed to joining the Eurozone, after meeting the Maastricht criteria. European Commission – Europa. Long-term economic stability will bring by having a common currency. The euro – European Commission. How the euro benefit us all. Countries receive many benefits for adopting the euro. Advantages Disadvantages 1. Thus, any reluctance to join could be seen as a refusal of deeper integration and also as unfinished homework. Wei, L. 2009. Historylearningsite.co.uk. Advantages & disadvantages of single currencies / monetary integration. Joining the EU member states, countries can increase GDP growth and prosperity. They also provide links to various other sources and explain why this has been an on-going debate for the UK since the European Union formed. Wall, S., Minocha, S. and Rees, B. Within the EU, each member state has its own financial system; therefore the introduction of the Euro will make a different impact on each country's economcy. Harlow, England: Pearson/ Financial Times Prentice Hall. A Study of the Benefits and Costs which Might Result for UK-based Firms Should the UK Adopt the Euro. High cost of membership. However the less flexible labour market, deflation and the lower economic growth seem to be major factors that have caused the UK to delay the decision to adopt the euro. 2014. With the euro, European businesses can easily lock in the best prices from suppliers in other eurozone countries. The reason being despite it having many advantages it has few disadvantages as well. Disclaimer: This work has been submitted by a university student. The European Union & Enlargement: Benefits, Advantages, and Disadvantages DJM2 Daniel Mason Jeffrey Prevost Merwyn D'Cruz Michelle Hahn Abstract This paper will describe the European Union and its origins, define enlargement, and name the EU member countries and the prospects of EU membership. Germany has the largest economy in the eurozone and had a history of sound monetary policy since World War II. Benefits of Joining Euro Lower transaction costs for firms and consumers evaluation – only a small % of firms turnover Greater certainty for firms investing in capacity to export to Europe. By keeping the interest rate low or stable, this can improve profitability of exports and more businesses will want to invest in UK firms. Disadvantages of the UK joining the single currency. However, pegging exchange rates to the German mark may have created a bias in favor of Germany. Within three years, however, the euro was established as an everyday currency and replaced the domestic currencies of many member states. The German economy was relatively prosperous by 2012, and European monetary policy was far too tight for weaker economies. The advantages of the euro include promoting trade, encouraging investment, and mutual support. Increase of costs necessary to make “shock” adjustments. D-Mark is the abbreviation for Deutsch Mark, the official currency of Germany until 2002 when the country adopted the euro (EUR). This as discussed would benefit customers and could help to boost business. Advantages as well as disadvantages of being a part of the European Monetary Union can have both economic and non-economic factors. By adopting the euro, the UK may be open to instability, lower growth, higher unemployment and economic decline due to not being able to set their own interest rates based on the national economy (Kern, 2002). Upper Saddle River, N.J.: Prentice Hall. Some of the key advantages and disadvantages of a country joining the single European currency (the Euro) are explored in this revision video. Initially, there was not enough collective action. 1997: BBC News | Single currency | Pros and Cons. Non-economic factors include: psychological and political advantages and disadvantages. While there are many advantages to the euro, there are also some disadvantages. It would be fair to say that the euro contributed to an economic depression in Greece. The single currency will remove this price differential making the whole Union work more.. Adopted by all the EU members as the main worry is over the UK join the currency! 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