To What Extent Do You Agree with the View That the Uk Economy Would Benefit If the Euro Were to Be Adopted at Some Point in the Future

797 Words Dec 20th, 2012 4 Pages
Back in 1992, the UK Conservative government was forced to withdraw the Pound from the European Exchange Rate Mechanism (ERM) after they were unable to keep it above its agreed lower limit. However now comes the question of whether or not that was the correct reaction to Black Wednesday since 55% of UK’s exports are already going to Eurozone countries, European tourists can bring more spending power into the UK as mentioned in extract D and in a time of recession, strength seems to come in numbers. Hence the UK could benefit from an adoption of the Euro.

The most controversial issue is that the European Central Bank (ECB) will take over monetary policy if the UK were to join the 17-countries strong zone. The problem with this is the
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Since the UK currently exports its majority to the UK, the change in currency would allow a decrease in costs and increase price transparency. This is because membership to the Euro would make it easier for consumers and businesses to compare relative price levels across member nations. Leading to increased information between firms, individuals and governments. This will encourage cross-border trade and increase the competitive pressures across many different markets. There are potential gains in consumer welfare if price transparency leads to improvements in allocative efficiency.

Furthermore, by adopting the same currency as 17 other countries, the already strong British Labour market would attract more immigration from other Eurozone states to push growth and to increase efficiency in the manufacturing of goods and services in the UK. This is shown through the second diagram (PPF graph) that shows that as more skilled employment is available to choose from there is an shift from point A to point B showing the output of consumer goods as well as capital goods, which could lead to attract capital inflows from outside of the Eurozone and strengthen trade relations there.

The best example of this is trade with the US, which could be strongly emphasized if the UK distanced itself more from the rest of the EU.

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