Although stocks also have exchange rate risks, the impact on bonds is far greater because of their lower volatility. [online] Available at: http://econsguide.blogspot.co.uk/2009/02/why-is-uk-considered-wise-to-choose.html [Accessed: 9 Feb 2014]. [online] Available at: http://www.historylearningsite.co.uk/euro.htm [Accessed: 8 Feb 2014]. 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… 2014. The majority of British people are against Britain joining the euro. News.bbc.co.uk. Wei, L. 2009: Your portal to the world: Pro & Cons For UK When Adopting Euro. 2014: A-level Economics The Euro Revision – Should the UK Join the Single Currency? 2011. [online] Available at: http://www.s-cool.co.uk/a-level/economics/the-euro/revise-it/should-the-uk-join-the-single-currency [Accessed: 10 Feb 2014]. The Advantages of the European Union 1. Or, the fiat currencies are not based on a real standard, but on the simply trust of people. Registered Data Controller No: Z1821391. The idea that the euro favors Germany is politically controversial, but there is some support for it. 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). 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. Axel Jörn (Author) Year 2015 Pages 23 Catalog Number V293971 File size 1882 KB Language English Tags Euro economy Eurozone Quote paper. What are the arguments for and against joining the Euro. The coronavirus crisis tested mutual support within the eurozone in 2020. 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). This will be beneficial for investment and growth as the strength of the currency will improve (Ec.europa.eu, 2013). The euro allows these weaker countries to enjoy lower interest rates. Price transparency. 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. 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. D-Mark is the abbreviation for Deutsch Mark, the official currency of Germany until 2002 when the country adopted the euro (EUR). eBook Collection (EBSCOhost), EBSCOhost [Viewed 9 February 2014]. The classic Keynesian solutions for these problems are entirely different. 2007. European economic and monetary integration, and the optimum currency area theory. 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 contrast, others suffer from prolonged economic downturns and high unemployment. 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. 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. Currencysolutions.co.uk. | S-cool, the revision website. [online] Available at: http://ec.europa.eu/economy_finance/euro/ [Accessed: 9 Feb 2014]. European Commission – Europa. Adopting the Euro in Central Europe, Challenges of the Next Step in European Integration: Occasional Paper. The main example of this is the introduction of the Euro in the European Union. Looking for a flexible role? Trading Free of Taxes Taxation can greatly hinder international trade. That's because the euro wasn't as risky to investors as a currency with less demand from users and traders. The euro is still not universally adopted by all the EU members as the main currency. 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. 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. 2013. Business benefits – European Commission. More importantly, the currency risks were eliminated from European trade. The issue of monetary policy has been in the center of all debates from the early establishment of the Euro … Although devaluations can be detrimental in some cases, it has been demonstrated in the past that well-chosen devaluations can help an economy out of difficulties. In present times it would seem an unpopular decision. Copyright © 2003 - 2021 - AUEssays is a trading name of All Answers Ltd, a company registered in England and Wales. The advantages of the euro include promoting trade, encouraging investment, and mutual support. 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. Kern, D. 2002. For example new cars in Europe cost less than new cars in the UK, a single currency will remove this price differential. 61-68, Business Source Complete, EBSCOhost, [Viewed 9 February 2014]. 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. Viper is a quick and easy way to check your work for plagiarism. Geoff Riley FRSA has been teaching Economics for over thirty years. 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. Economically, the euro's advantages include: Elimination of exchange-rate fluctuations - Any time either a consumer or a business made a commitment to buy something in a different country in the future (at future prices), they stood the chance of … With the various forums online and the above sources, there will be a large amount of information. Baimbridge, M. and Whyman, P. 2008. The U.K. was first forced to raise interest rates and eventually pushed out of the ERM on Black Wednesday in 1992. This might lead to lack of confidence in the economy. However, the euro's considerable flaws became more apparent when it was tested by a series of challenges early in the 21st century. This single currency system has one major advantage, as … 1997. Mongelli, F. P. 2008. A single currency should end currency instability in the participating countries (by irrevocably fixing exchange rates) and reduce it outside them. The psychological advantages due to stability of domestic currency are a higher self-respect, and 2013. The main benefit for businesses is that due to the single currency there will be no costs in exchanging currencies with EU countries which will result in the uncertainty for businesses being reduced. 2011. 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’. Here are the current advantages and disadvantages of the European Union to consider and discuss. 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. Econ.economicshelp.org. 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. Advantages of joining the euro: 1. News.bbc.co.uk. As a result, the strong U.K. economy of that era experienced excessive inflation. For example, even a prosperous small Caribbean country can be devastated by a hurricane. How the euro benefit us all. Wall, S., Minocha, S. and Rees, B. The high growth country ought to have high interest rates to prevent inflation, overheating, and an eventual economic crash. [online] Available at: http://ec.europa.eu/economy_finance/euro/why/business/index_en.htm [Accessed: 8 Feb 2014]. As growth slowed and unemployment increased in countries like Italy and Greece, investors feared for their solvency, driving up interest rates. 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. VAT Registration No: 842417633. The primary risk in lending across borders was the currency risk, instead of default risk. … 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. Economics This article provides you with the pros and cons of EU to evaluate before buying a membership. http://www.brugesgroup.com/mediacentre/index.live?article=74, http://www.currencysolutions.co.uk/euro/the-unpredictable-character-of-british-pound-and-the-euro-exchange-rate, http://ec.europa.eu/economy_finance/euro/why/business/index_en.htm, http://ec.europa.eu/economy_finance/euro/, http://econ.economicshelp.org/2007/03/why-uk-will-never-join-euro.html, http://ec.europa.eu/economy_finance/general/pdf/how_the_euro_benefits_us_all_en.pdf, http://www.historylearningsite.co.uk/euro.htm, http://news.bbc.co.uk/1/hi/special_report/single_currency/25081.stm, http://www.s-cool.co.uk/a-level/economics/the-euro/revise-it/should-the-uk-join-the-single-currency, http://econsguide.blogspot.co.uk/2009/02/why-is-uk-considered-wise-to-choose.html, Assess the benefits of the UK adopting the EURO, Assess the drawbacks associated with the UK adopting the EURO, How businesses can utilise these benefits and survive in the international market, Look at the political, economic, social and environmental factors, Provide workplace and personal experience. Wei, L. 2009. Free resources to assist you with your university studies! The European single currency is a common legal tender currently used by 17 of the 27 member states of the Euro zone. As a result, foreign currency bonds have a poor risk-return profile for most investors. 2. Advantages and Disadvantages of the EURO -Business-, Consumer- and Public Sector perspective Course Economics Author. The Unpredictable Character of British Pound And The Euro Exchange Rate. London: British Chamber of Commerce. 2011. [online] Available at: http://www.brugesgroup.com/mediacentre/index.live?article=74 [Accessed: 10 Feb 2014]. On the downside, the euro was blamed for overly rigid monetary policy and accused of a possible bias in favor of Germany. ... Now you have seen the advantages and disadvantages for the joining counties. 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 online scanning system matches your work against over 5 Billion online sources within seconds. 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. Investors in countries using foreign currencies face significant foreign exchange risk, which can lead to an inefficient allocation of capital. 2007. The German economy was relatively prosperous by 2012, and European monetary policy was far too tight for weaker economies. Pros: 1. There are many benefits to adopting the euro for the UK and for businesses alike which include eliminating risks and cutting costs. 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. See the answer. While there are many advantages to the euro, there are also some disadvantages. Unfortunately, interest rates cannot be simultaneously raised in the high growth country and lowered in the low growth country when they have a single currency like the euro. 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. The physical conversion from sterling to euros will have many costs for banks and retailers which the UK Government is unlikely to cover, such as training staff, changing computer software, creating open euro bank accounts and educating customers. Initially, there was not enough collective action. Irons, J. S. and Colander, D. C. 2002. European Union is an economic and political union established to support 28 member states. However, the European Central Bank consistently bought up enough debt in afflicted countries, especially Italy, to keep interest rates relatively low. 1. 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. for and against the UK joining the European single currency. Given the enormous influence of the euro currency on the global economy, it is useful to look closely at its advantages and disadvantages. It is said that the cost per head vary between £300 and £873, which explains why the UK government spending reached a net worth of £6.883 billion, excluding regulation cost. Advantages: 1. The main benefits of the euro are related to increased trade. Becoming a member of the EU does not come cheap. Harlow, England: Pearson/ Financial Times Prentice Hall. 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). Long-term economic stability will bring by having a common currency. A Study of the Benefits and Costs which Might Result for UK-based Firms Should the UK Adopt the Euro. In order to achieve the goals identified above, a variety of different sources have to be explored. With the euro, European businesses can easily lock in the best prices from suppliers in other eurozone countries. Benefits of joining the euro area . The offers that appear in this table are from partnerships from which Investopedia receives compensation. European Economic and Monetary Integration, and the Optimum Currency Area Theory by Mongelli, F. P. Ec.europa.eu 2014; The euro – European Commission. In the 1990s, Germany pursued a looser monetary policy to deal with the burdens of reunification. 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). This time, monetary policy was too tight rather than too loose. Brussels: Office for Infrastructures and Logistics. Even worse, many nations closed their borders to each other. Advantages as well as disadvantages of being a part of the European Monetary Union can have both economic and non-economic factors. The Pros And Cons Of Joining The Euro 891 Words | 4 Pages. The advantages and disadvantages of joining the European Monetary Union (Emu) will vary from country to country, and are difficult to predict. 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). The only constant was that the euro continued to work in favor of Germany. Like the Federal Reserve in the United States, it oversees the nation's banking system and monetary policy. The Bundesbank is the central bank of Germany. The euro was created on January 1, 1999, and it was designed to support economic integration in Europe. 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). A single currency is when a number of countries join their currencies together into one single currency. Ec.europa.eu. What Are the Advantages of the European Union? It would be fair to say that the euro contributed to an economic depression in Greece. Problems with the policies. 1482 Words 6 Pages. 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)). European Union Advantages And Disadvantages. With a single currency the European Central Bank will focus on economic conditions across the board helping to lower the interest rate. Topic: Analyse the main advantages and disadvantages of European Union enlargement for a) existing members and b) for applicant countries. It provides members with greater influence on international matters. The currencies of countries with larger economies tend to be more stable because they can spread risk more effectively. While in the second part I will show some light on the current heated debate about UK joining the Euro Zone. 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. From Single Market to Single Currency: Evaluating Europe’s EconomicExperiment. Higher interest rates increased unemployment and even caused deflation and negative economic growth in some countries. 1997: BBC News | Single currency | Pros and Cons. The Advantages And Disadvantages Of Foreign Exchange Rate In China's Economy; The Advantages And Disadvantages Of Foreign Exchange Rate In China's Economy. Historylearningsite.co.uk. EURO – ADVANTAGES AND DISADVANTAGES 65 But the euro is not a perfect instrument. Aldershot, England: Ashgate. A-level Economics The Euro Revision – Should the UK Join the Single Currency? 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. Labor and goods can flow more easily across borders to where they are needed, making the whole union work more efficiently. 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). A currency union is where more than one country or area shares an officially currency. Its official currency is the euro. 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. By keeping the interest rate low or stable, this can improve profitability of exports and more businesses will want to invest in UK firms. I will discuss these advantages and the disadvantages in the first part of my essay. This could also be very useful for SMEs as well as large organisations due to prices going down and hopefully competitiveness will promote more business. The interest rate of the Bank of England and other central banks is known to be volatile. Do you have a 2:1 degree or higher? Increase of costs necessary to make “shock” adjustments. [online] Available at: http://ec.europa.eu/economy_finance/general/pdf/how_the_euro_benefits_us_all_en.pdf [Accessed: 8 Feb 2014]. Operating as a single market and following common poli… UK Businesses may also have to drive down prices due to the combination of improved availability of information and price transparency. The advantages and disadvantages of the European Union show us that a greater good can come from such a structure. 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]. Influence on international matters: Joining the EU member states […] European Commission – Europa. Some of the key advantages and disadvantages of a country joining the single European currency (the Euro) are explored in this revision video. More importantly, France and Germany supported a recovery fund worth over 500 billion euros. In fact, the euro caused precisely the opposite of standard economic policy to be implemented during the European sovereign debt crisis. 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 European Union (EU) is a group of countries that acts as one economic unit in the world economy. Advantages Disadvantages 1. Econ.economicshelp.org. Joining the EU member states, countries can increase GDP growth and prosperity. To export a reference to this article please select a referencing stye below: If you are the original writer of this essay and no longer wish to have your work published on the UKDiss.com website then please: Study for free with our range of university lectures! The low growth country should lower interest rates to stimulate borrowing. Travel was made easier by removing the need for exchanging money. However, the European Central Bank's independence meant printing money was not an option for eurozone governments. The euro system has created a large zone within Europe in which various countries all share the same currency. 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. 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). About UK joining the euro was established as an everyday currency advantages and disadvantages of joining the euro replaced the domestic currencies of countries join currencies... Now 13 nations who have joined this treaty where in which various countries all share the currency... ( EMU ) Definition the classic Keynesian solutions for these problems are entirely different German mark have. To lack of confidence in the second part i will show some light on downside. 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