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     EU Eurozone (16)      EU states obliged to join the Eurozone (9)      EU state with an opt-out on Eurozone participation (1 - UK)      EU state planning to hold a referendum on the euro (1 - Denmark)      States outside the EU with issuing rights (3)      Other non-EU users (4)   

The United Kingdom's currency is the pound sterling. The UK has no plans to replace Sterling with the euro in the foreseeable future.

The UK negotiated an opt-out from the part of the Maastricht Treaty that required it to adopt the common currency. The current Prime Minister, Gordon Brown, ruled out membership in 2007, saying that the decision not to join had been right for Britain and for Europe.[1] The British government under Brown has committed itself to a triple-approval procedure before joining the Eurozone, involving approval by the Cabinet, Parliament, and the electorate in a referendum.

The government of former Prime Minister Tony Blair declared that "five economic tests" must be passed before the government could recommend the UK joining the euro and promised to hold a referendum on membership if those five economic tests were met. The UK would also have to meet the EU's economic convergence criteria (Maastricht criteria), before being allowed to adopt the euro. Currently, the UK's annual government deficit to the GDP is above the defined threshold.

In November 2008, president of the European Commission, José Manuel Barroso, stated in an interview on French radio that he felt Britain was "closer than ever" to joining the euro. He cited the weakness of the pound and economic turmoil as the motivators behind renewed interest. He noted that Denmark, which also has an opt-out on the euro and is facing difficulties is now planning to hold a referendum on the euro. The British government denied there had been any change of heart regarding the euro.[2] Despite this, in February 2009, Monetary Policy Affairs Commissioner Joaquin Almunia said, "The chance that the British pound sterling will join: high."[3]

British public opinion is consistently hardening against adopting the euro. Opinion polls in 2005 (57 percent opposed),[4] 11–12 December 2008 (59 percent opposed)[5] and 6–8 January 2009 (64 percent saying they would vote no to a change of currency)[6] demonstrate this opposition. In a poll taken for BBC Radio 4 between 19–21 December 2008, 71% of respondents said they would vote No whilst 23% of participants would vote Yes, and 6% were undecided. The economic recession in Britain and the fall in value of the pound have not contributed to a change in public opinion.[7] The most recent poll, conducted in early May 2009, continues to show strong opposition, with 75% of respondents pledging to vote against joining the euro.[8]

Contents

Economics

Unlike other European countries, where the euro is seen mostly as an essential building block in a more politically integrated Europe, in the United Kingdom the possible benefits of Eurozone membership are seen as principally economic. An assessment of British membership based on five economic tests was published on 9 June 2003 by Gordon Brown, when he was Chancellor of the Exchequer. Though maintaining the government's positive view on the euro, the report opposed membership because four out of the five tests were not passed. However, the 2003 document also noted the considerable progress of the UK towards satisfying the five tests since 1997, and the desirability of making policy decisions to adapt the UK economy to better satisfy the tests in future. It cited considerable long-term benefits to be gained from eventual, prudently conducted EMU membership.

Some believe that removing the United Kingdom's ability to set its own interest rates would have detrimental effects on its economy. One argument is that currency flexibility is a vital tool and that the sharp devaluation of Sterling in 2008 was just what Britain needed to rebalance its economy.[9] Another objection is that many continental European governments have large unfunded pension liabilities. They fear that if Britain adopts the euro, these liabilities could put a debt burden on the British taxpayer,[10] though others have dismissed this argument as spurious.[11]

Some argue that as intra-European exports are 60% of the UK's total exports, a single currency would enhance the single market by reducing the cost of exchanging currency for businesses and travellers, and reducing currency risk.[12] An interesting parallel can be seen in the 19th century discussions concerning the possibility of the United Kingdom joining the Latin Monetary Union.[13]

Academic research on the effect of an entry on the UK economy has generally found that it would have a positive effect on the British economy. The most evident impact would likely be a positive effect on trade with the other members of the Eurozone.[14] It could also have a stabilizing effect on the stock market prices in the UK.[15] A simulation of the entry in 1999 found that it would have had an overall positive, though small, effect in the long term on the UK GDP if the entry had been made with the rate of exchange of the pound to the euro at that time. With a lower rate of exchange, the entry would have had more clearly a positive effect on the UK GDP.[16] A recent study about the effect of an entry in the coming years finds that the effect would be likely to be positive, improving the stability for the U.K. economy.[17]

In June 2003, Gordon Brown stated that the best exchange rate for the UK to join the euro would be around 73 pence per euro[18]. (On 26 May 2003 the Euro had reached 72.100, a value not exceeded until 21 December 2007).[19]. In April 2008 , the euro rose to 80.610. It was 80.650 on 5 Nov 2008 and peaked at 97.855 on 29 December 2008. [20] With the impact of the Global financial crisis of 2008 on the British economy: failing banks, plunging UK property values and the pound sterling at £0.8598 (€1.1631/£) against the euro on 19 November 2008,[21] some British analysts stated that adopting the euro was far preferable to any other possible solutions for Britain's economic problems.[22] On 29 December 2008, the BBC reported that sterling had reached roughly €1.023/£, due to more poor economic forecasts. This report stated that many analysts believed that parity with the euro was only a matter of time.[23]

During 2009, the value of the euro against the pound fluctuated between 0.96100 on 2 January and 0.84255 on 22 June. On 10 March 2010 the euro closed at £0.91140 (€1.0972/£) against the euro [24]. The weakness and the volatility of the pound have raised concerns for the costs it entails for British consumers at home,[25][26] and Britons living[27] or travelling abroad.[28] On the other hand, a report in Britain's Daily Telegraph has argued that the high euro has caused problems in the eurozone outside Germany. [29]

Non-economic factors

Some British eurosceptics believe the single currency is merely a stepping stone to a unified European superstate which they strongly reject, or argue against it on other grounds. As of December 2008, bookmakers were offering odds-on bets that the United Kingdom would adopt the euro by 2014.[30]

Sterling zone

If the United Kingdom were to join the eurozone, this would affect the Crown dependencies and some British Overseas Territories that also use the pound sterling, or which have a currency on a par with sterling. In the Crown Dependencies, the Isle of Man, Jersey, Guernsey, and Alderney pounds, all share the ISO 4217 code GBP. In the British Overseas Territories, the Gibraltar, Falkland Islands, British Indian Ocean Territory and Saint Helena pounds are also fixed so that £1 in the local currency equals £1 in sterling.

When France adopted the euro, so did the French overseas departments and territories that used the French franc. The CFP franc and the CFA franc, that were used in overseas territories had fixed exchange rates with the French franc, but not at par – for various historical reasons they were worth considerably less, at approximately 5 centimes. The CFA franc and the Comorian franc are linked to the euro at fixed rates with free convertibility maintained at the expense of the French Treasury. The CFP franc is linked to the euro at a fixed rate.

The sterling zone territories therefore have four options:

  • Enter the eurozone as a non-EU member, either as a distinct national variant of the euro — just as Monaco and the Vatican have done. The EU has demanded that 'monetary agreements' be entered into by non-EU members who wish to issue their own euro coinage, and has pressured Andorra into not issuing their own coins until this is resolved. Such agreements, the EU has stated, must include adherence to EU banking and finance regulation.
  • Use standard euro coins issued by the UK and other eurozone countries. This may be perceived by some as losing an important symbol of independence.
  • Maintain their existing currency, but peg at a fixed rate with the euro. Maintaining a fixed rate against currency speculators can be extremely expensive, as the UK found on Black Wednesday. However, if the UK supports the keeping of the fixed rates of these small currencies, it would be so trustworthy that no speculation would take place.
  • Adopt a free-floating currency, or a currency fixed to another currency, as the Jersey government has hinted.[31]

Gibraltar is in a separate position, as it is within the EU (as part of the UK's membership). If the UK were to adopt the euro it might not be possible to implement an opt-out for Gibraltar. It is unclear whether Gibraltar would be subject to its own referendum or would be included in a UK referendum, since Gibraltar votes as a part of the UK in European parliamentary elections.

Banknotes

Currently, some private banks in Scotland and Northern Ireland print and issue Sterling banknotes of their own design. The Banking Bill, 2008[32] will amend the right of Scottish and Northern Irish banks to produce banknotes. This does not apply in Wales which predominately uses Bank of England notes.

In November 1999, in preparation for the introduction of the euro notes and coins across the Eurozone, the European Central Bank announced a total ban on the issuing of banknotes by entities that were not National Central Banks ('Legal Protection of Banknotes in the European Union Member States'). A move from Sterling to the euro would end the circulation of sub-national banknotes as all euro banknotes have an identical design. However, as national variation is a requisite of euro coins, it is possible that the Royal Mint could continue to include the symbols of the Home Nations on the British-designed coinage, although these would be in place of the monarch's portrait.

New Sterling coin designs

The United Kingdom went ahead with new coin designs in 2008 following the Royal Mint's biggest redesign of the national currency since decimalisation in 1968. German newspaper Der Spiegel suggested that this decision was to reinforce the idea that the euro will not be adopted in the UK for a long while.[33] It is however an unwritten convention that the coin designs should be changed every 40 years to keep the coinage fresh.[34]

Parity with the euro

During the final months of 2008, the pound declined in value dramatically against the euro. This led many to believe that parity between the pound and the euro was imminent and created some media discussion about the possibility of adopting the euro. Alex Salmond, the First Minister of Scotland called for more Scottish businesses to accept the euro to encourage tourism from the Eurozone, noting that this is already done by organisations such as Historic Scotland.[35]

Some shops in Northern Ireland started accepting the euro at parity, causing a large influx of shoppers from across the Irish border. This made some shops the most successful in their company for several weeks.[36][37]

Polls

Polls on the question of whether the UK should join the euro. The wording of the question may have varied.

Date YES NO Unsure Number of participants Held by Ref
9 - 10 June 2003 33% 61% 7% 1852 YouGov [38]
10 - 15 February 2005 26% 57% 16% 2103 Ipsos MORI [4]
11 - 12 December 2008 24% 59% 17% 2098 YouGov [5]
19 - 21 December 2008 23% 71% 6% 1000 ICM [7]
6 - 9 January 2009 24% 64% 12% 2157 YouGov [6]
1 - 4 May 2009 23% 75% 2% 1002 ICM [8]

See also

References

  1. ^ "Puritanism comes too naturally for 'Huck' Brown". The Times. 2007-07-24. http://www.timesonline.co.uk/tol/news/politics/article2127640.ece. Retrieved 2007-08-13. 
  2. ^ "No 10 denies shift in euro policy". BBC. http://news.bbc.co.uk/2/hi/business/7757830.stm. Retrieved 4 January 2009. 
  3. ^ "UPDATE 1-EU's Almunia: high chance UK to join euro in future" in.reuters.com 02 February 2009 Link retrieved 02-02-09
  4. ^ a b "EMU Entry and EU Constitution". Ipsos MORI. 2005. http://www.ipsos-mori.com/content/emu-entry-and-eu-constitution.ashx. Retrieved 2009-05-23. 
  5. ^ a b "Welcome to YouGov". Yougov.com. http://www.yougov.com/uk/archives/pdf/ST-12-Dec_topline.pdf. Retrieved 2009-04-16. 
  6. ^ a b "Welcome to YouGov". Yougov.com. http://www.yougov.com/extranets/ygarchives/content/pdf/TPA%20results%2009%2001%2008.pdf. Retrieved 2009-04-16. 
  7. ^ a b "Most Britons 'still oppose euro'". BBC. http://news.bbc.co.uk/1/hi/uk/7806936.stm. Retrieved 4 January 2009. 
  8. ^ a b "ICM Poll". taxpayersalliance.com. 2009. http://www.taxpayersalliance.com/files/icmpoll.pdf. Retrieved 2009-05-22. 
  9. ^ "Why Britain Shouldn't Join The Euro Zone". Forbes.com. http://www.forbes.com/markets/2008/12/11/pound-euro-joining-markets-equity-cx_vr_1211markets17.html. Retrieved 2009-04-16. 
  10. ^ [1]
  11. ^ http://www.highbeam.com/doc/1G1-18954230.html
  12. ^ "Joining The Euro". Ipsos MORI. 2006. Archived from the original on 2008-12-11. http://web.archive.org/web/20070216202435/http://www.mori.com/europe/mori-euro-ref.shtml. Retrieved 2006-09-12. 
  13. ^ Einaudi, Luca (2001) (PDF). European Monetary Unification and the International Gold Standard (1865-1873). Oxford University Press. ISBN 0-19-924366-2. http://fds.oup.com/www.oup.co.uk/pdf/0-19-924366-2.pdf. Retrieved 2007-08-13. 
  14. ^ "Exchange rate uncertainty, UK trade and the euro". Applied Financial Economics. 2004. 
  15. ^ "The Euro and Stock Markets in Hungary, Poland, and UK". Journal of Economic Integration. 2007. 
  16. ^ "What if the UK had Joined the Euro in 1999?". papers.ssrn.com. 2005. 
  17. ^ "Euro Membership as a U.K. Monetary Policy Option: Results from a Structural Model". NBER Working Paper No. w14894. 2009. 
  18. ^ "Britain not ready to join euro". Guardian Unlimited. 2003-06-09. http://politics.guardian.co.uk/print/0,,4687429-107976,00.html. Retrieved 2006-09-12. 
  19. ^ "Pound sterling (GBP)". European Central Bank. http://www.ecb.int/stats/exchange/eurofxref/html/eurofxref-graph-gbp.en.html. Retrieved 2009-12-25. 
  20. ^ http://www.ecb.int/stats/exchange/eurofxref/html/eurofxref-graph-gbp.en.html
  21. ^ "ECB official rates against the British pound". ECB. http://www.ecb.int/stats/exchange/eurofxref/html/eurofxref-graph-gbp.en.html. Retrieved 2008-11-19. 
  22. ^ "It might be politically toxic - but we must join the euro now". guardian.co.uk. http://www.guardian.co.uk/commentisfree/2008/nov/16/comment-will-hutton-euro. Retrieved 2008-11-19. 
  23. ^ "Business | Pound hits new low against euro". BBC News. 2008-12-29. http://news.bbc.co.uk/2/hi/business/7802981.stm. Retrieved 2009-04-16. 
  24. ^ "ECB official rates against the British pound.". ECB. http://www.ecb.int/stats/exchange/eurofxref/html/eurofxref-graph-gbp.en.html. Retrieved 2010-03-09. 
  25. ^ http://www.independent.co.uk/life-style/food-and-drink/weak-pound-heaps-food-price-inflation-on-poorest-households-1666124.html
  26. ^ http://business.scotsman.com/inflation/Weak-pound-triggers-unexpected-rise.5102495.jp
  27. ^ http://www.telegraph.co.uk/finance/personalfinance/offshorefinance/6494900/Wild-sterling-fluctuations-cost-expat-pensioners-billions.html
  28. ^ http://news.bbc.co.uk/1/hi/programmes/moneybox/7808385.stm
  29. ^ http://www.telegraph.co.uk/finance/6860983/The-rise-of-Germany-belies-the-chaos-a-strong-euro-is-causing.html
  30. ^ "Britain odds-on to adopt euro by 2014". Politics.co.uk. http://www.politics.co.uk/news/opinion-former-index/economy-and-finance/britain-odds-on-adopt-euro-by-2014-$1253946.htm. Retrieved 2009-04-16. 
  31. ^ What should the Island do in the wake of Jersey’s curve ball?, PDMS, 2003-09-01. Retrieved 2007-01-07.
  32. ^ "UK Parliament site". Services.parliament.uk. 2009-04-01. http://services.parliament.uk/bills/2008-09/banking.html. Retrieved 2009-04-16. 
  33. ^ "Make Way for Britain's New Coin Designs". http://www.numismaster.com/ta/numis/Article.jsp?ad=article&ArticleId=4420. Retrieved 2008-05-17. 
  34. ^ Poulter, Sean (29 June 2009). "Have you a 20p worth £50 in your pocket? Royal Mint error results in undated coins". Daily Mail. http://www.dailymail.co.uk/news/article-1196176/Have-20p-worth-50-pocket-Royal-Mint-error-results-undated-coins.html. Retrieved 29 June 2009. 
  35. ^ Salmond in call for euro rethink, BBC News 4 January 2009. Retrieved 6 January 2009.
  36. ^ Seeking bargains across borders, BBC News 14 October 2008. Retrieved 6 January 2009.
  37. ^ 'Euro tourists' crossing border, BBC News 22 December 2008. Retrieved 6 January 2009.
  38. ^ "YouGov Survey Results: The Euro". Yougov.com. http://www.yougov.co.uk/extranets/ygarchives/content/pdf/TEL020101026.pdf. Retrieved 2009-10-03. 

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