Proposed Topic
Considering the incredible success of European Union and the single currency, the Euro, introduced by the European Union what are the main factors that can influence Britain to adopt Euro and how UK businesses can benefit from a single currency?
Introduction
.The world is moving fast towards economic and cultural integration to benefit from international trade and combined political and economic power to influence the geopolitical affairs of the world and fulfill their global aspirations. This trend is shaping the political and economic alliance of the world by bringing together old foes and enemies to form trading blocs. European Union is a prime example of this global trend where countries who fought each other for decades, came together to form a bloc. It is argued that these agreements are based on the political agendas but one cannot neglect the economic strength of these blocks. There had been talks about such agreements in the mid of twentieth century. European Union is one successful example of such trading agreements. It is a union comprises of 27 countries. It introduced the single currency, called Euro. Initially, in 11 countries which has now increased to 16 countries. The area comprising of these 16 countries is called the Eurozone and the combined economy of the Eurozone countries have become the second largest economy in the world after US. It decides the Monetary Policy of the member states in the Eurozone and aims to control the inflation, better living standards for its citizens and a frontier free travelling and trading between its member states. Great Britain is part of the European Union but it has opted out from using the single currency, the euro. United Kingdom is one of the world’s leading economies. It is a member of WTO and G7 club of countries. In this paper we are going to study the current global trend towards establishing regional economies and our focus would be European Union economic zone. Now that the European Monetary Union is fully functional, the Great Britain now has to decide whether it would like to join it or not. Economic analysts, opinion polls and local business as well as the major political parties are all divided on this issue. It is purely a political decision and political discussions are equally vital in this matter. There is , after all , a close relationship between Monetary and Political unions. However, economic analysis plays an important role in the understanding the issue of monetary union.
Background
The monetary union of the European countries came into existence on 1st Jan. 10 by 11 member states based on the Treaty of European Union criterion which is also called the Treaty of Maastricht but United Kingdom and Denmark opted not to adopt the Euro for the time being. The public opinion as well as the political opinion is divided on different issues. The business can experience a fair decrease in the opportunity cost, especially small businesses while competing in the single market. UK businesses would have more stability. The currency conversion cost and the risk of exchange rate change would decrease and competition might increase. It also has many negative impacts on the businesses. It might bring a more limited policy of borrowing. Also, it is needed to see how the state welfare system of UK would cope with this change.
Aims and Objectives
The dissertation aims to understand the success of the European Union. It also aims to study the idea of single currency between its member states and how successful it is. The objectives include the main possible factors that UK should consider in making its decision for joining the single currency market. It also aims to study the effects of United Kingdom joining the Euro and the European Monetary Policy on United Kingdom’s economy. The study would look at the possible impact of single currency on the businesses in the UK .
Research Questions
– These are the following questions that this project would try to answer;
– What is the main reason for European Union to choose a single currency?
– What are the main benefits and cost of a single currency?
– What main factors should UK consider before deciding for joining the European Single Currency?
– What are the main advantages or disadvantages to the UK businesses from single currency? And how can they dilute the possible cost rising from joining the Euro?
Literature Review
The proposed dissertation talks about the ongoing fashion of forming economic alliances and lifting trade and tariff barrier to allow free trade zones between the member states. It talks about the exemplary formula tested by European countries by forming European Union. It discusses about the introduction of single currency between the member states and the United Kingdom’s position on not adopting the European Single currency, the Euro.
Regional Economies
Regionalism is very trendy in the modern world. The news of a group of countries coming together to make agreements for economic corporation mainly by increasing trade and investment and removing barriers. This wave of regionalism is not new. There have been previous attempts to strike trading agreements during 1960s. These trading pacts have been very influential in political past. This is an age of Globalisation and it has introduced a number of trends which became established after Second World War. Movement of money, people, commodities, information is a part of it and organisations, institutions, legal frameworks and technological developments have been made to assist it. This gave birth to continental trading bloc such as European Union, NAFTA and somewhat ASEAN. These blocs are mainly based on Continental boundaries. A trading bloc refers to a free or near free trading zone that comes into effect by the introduction of different tax, trade and tariff pacts. Normally these trading agreements describe such a group that give official arbitration bodies. This can also become politically active and might have a common parliament like EU. These regional agreements are formed to increase the level of international trade and flow of money, larger movement of information among nations. It brings cultural exchange between nations and reduces cultural diversity. National boundaries and sovereignty are eroding and increase in immigration and tourism is reported. International organisations such as WTO and IMF have an increased role in this environment to monitor international transactions and global financial systems are being formed. Political analysts argue that these unions are natural politically formed entities. In 1948, in his famous novel, “Nineteen Eighty Four”, George Orwell presented the idea of world powers coming together to consolidate and form continental trading blocs which would be defended by military force that would be constantly changing alliances to pit against the third. He forecasted that these would unions would turn into continental empires. The formation and expansion of European Union towards eastern countries and the introduction of Euro as a single currency for the region, formation of NAFTA and ever increasing role of ASEN countries only certifies that belief. International, in particular, regional economic units have come into existence to increase trade and cooperation among member states particularly after the downfall of empires of the world. These unions, particularly EU, have clear and implicit political agendas. Different regional economic blocs have customs unions, monetary and economic unions, free trade zones and a single market.
European Union
The European Union can be defined as an international organisation consisting of European Countries. It was formed on the Treaty on European Union, the Maastricht Treaty. It is a political and economic partnership. The European Union is the modern world’s most influential and powerful regional union which in some ways looks a lot like a state, nevertheless not absolute as members’ countries still keep diplomatic ties in other member states. According to some legal analyst, it should be considered as a sui generis unit rather than an international organisation. Currently, it consists of 27 democratic members states. It aim is to prosperity, peace and freedom to its 498 million people in a safer and fairer world. A single currency, Euro, for its member states (except United Kingdom, Denmark and Sweden), frontier free trade and travel and common policies on environment, food crime and joint actions are its major achievements so far. To make EU function, its member states establish legislative bodies like European Parliament that represents the citizens of Europe, Council of European Union that represents the national governments in EU and thirdly, European Commission which represents the common interest of EU globally.
European Central Bank
The European Central Bank based in Frankfurt is the central bank of EU. It regulates the Monetary Policy of the 16 member states that use the Euro Currency. The main purpose of ECB is to control inflation. For this purpose it may decrease or increase interest rates. It is run by a President with board of directors and board of governors which comprises of members from board of directors and ESCB central bank representatives. It has been modelled on Germany’s Bundesbank and Landsbanks.
European System of Central Banks (ECSB)
The European System of Central Banks is a combination of the central banks of the 16 member states of EU that have adopted the Euro and the European Central Bank of the European Union. This combination is termed as “Eurosystem”. Those central banks that are part of the Eurosystem but do not take part in the Eurozone such as United Kingdom and Denmark have a special status and are allowed to conduct their independent monetary policies but they have no representation in decision and implementation of the eurozone monetary policies.
The main purpose of the Eurosystem is to keep the prices stable as agreed in the Treaty of European Community and Statute of European Central Bank and European System of Central Banks. The Eurosystem gives help to common economic policies of the community and works in line with standard of open market economy without neglecting its original objectives. The Eurosystem strive to control and maintain the stable prices through making and employing monetary policy, by carrying out foreign exchange actions, by making transaction smoother and by keeping and controlling the exchange reserves of the member countries.
Eurosystem has a centralised decision making process through ECB’s decision making bodies such as Executive Board and Governing Council. There is also a third body called General Council that is the decision making body of ECB because of the member states that are still not part of the Eurozone.
Euro
The official currency of the European Union is called Euro which is currently used in 16 member states of the European Union. It was introduced 1st of January 1999 to replace the national currencies in the 11 member states and was circulated by 1st January 2002. The name “Euro” was chosen on 16th December 1995. The states that have adopted euro are called Eurozone which includes Austria, Belgium, Cyprus, Finland, France, Germany, Greece, Ireland, Italy, Luxemburg, Malta, Netherland, Portugal, Slovakia, Slovenia and Spain. Another five member states use the euro with or without an official agreement. The Euro is the world second most traded and second largest reserves currency. Euro is largest circulating currency in the world with the greatest combined value of banknotes and coins, as in February 2010, around €784 billion were in circulation. According to IMF’s 2008 report, eurozone is the world’s second largest economy based one GDP and PPP of between Euro and Dollar.
Great Britain
The Great Britain is one of the world’s most developed capitalist economies and is part of the European Union. It, on the basis of nominal Gross Domestic, sits at number six and at number seven by Product Purchasing Power Parity in the world’s leading economies according to World Bank’s report of 2008. It is the third largest economy in the European Union after Germany and France in terms of nominal GDP and second largest in terms of PPP. The GDP/PPP per capita makes it 18th highest in the world. Great Britain is a prominent member of richest economic clubs such as G7, G8 and G20. It is also a member of Commonwealth of Nations, WTO and OECD. Although, Great Britain is a member state of European Union, it has not yet adopted the single European currency, Euro, and holds special privilege to conduct its own monetary policy.
Great Britain is a leading industrialized country in the world. It lacks most of the raw material required for the factories. It has a highly developed agriculture system where only 2% of the workforce fulfils 60% of the country’s food needs and rest of 40% is imported. Major manufacturing industries include tools for machines, automation, railroads, electric power, aircrafts, and automobiles and their parts, ships, communication and electronic products, chemicals, metals, coal, paper, petroleum, printing, textile and food processing. But Great Britain has shifted from manufacturing economy base to service economy base and by the turn of the century, its business services, banking sector, insurance and other service sector industries employed around 80% of the country’s workforce and made up the three fourths of the GDP. British Prime Minister, Gordon Brown, then Chancellor, proposed five economic test that UK economy must be able to pass before UK can decide whether to join the Euro or not. The basic purpose for these tests was to assess the ability of the UK to deal with the common monetary policy of the Eurozone. The key test is to assess the level of the economy harmonisation of the UK has with the Europe.
1. If British economy can have a continuous transition to single currency economies.
2. If there are adequate flexibility to deal with the economic change.
3. What effect it would have on the investment.
4. What impact it would have on Britain’s service industry.
5. If it is good for the employment level in the UK.
Hypothesis/ Research
The hypothesis is that the single currency would be advantageous to the UK economy but it would incur huge cost in the long run and UK business would have an even higher transitional cost.
Research Methodology
It is a way to systematically solve the research problem. The purpose of the research is to mainly review and analyze the existing knowledge about the regional economies and UK joining the single currency.
Several factors call for an inductive approach for this research. Firstly, the limited resources do not permit an exhaustive data collection as required for a quantitative analysis. Secondly, In accordance with Gill and Johnson (1997, p33), the inductive approach also allows to build up on the author’s personal experience in the area of economics.
In this respect, the aim of the dissertation will be addressed mostly through desk research. This research will begin from books related to the economics to identify and understand the basic theories. In addition, articles in journals, statistics, reports and publications issues by European Union, the European Central Bank and the UK government , the official letters and televised interviews and symposium or workshop reports discussing applicability, advantage and disadvantages and limitations of the regional economies and UK joining the Euro.
According to Gill and Johnson (1997; p1), “Research methodology is always a compromise between options, and choices are frequently determined by availability of resources.” The resources available for my research suggest that I resort to convenience
British Sterling Pound is the official currency of the United Kingdom. There is been a debate about UK replacing its currency with the single currency of the EU, the Euro. The British Prime Minister, Gordon Brown, and then Chancellor of the Exchequer pledged to carry out a national referendum over the issue based on five tests. After analysing his tests, Gordon Brown wrapped up that although it is a close decision, the Great Britain should avoid joining the Euro.
Timeline
The dissertation time has been divided into four different areas of Literature Review, Data Analysis, Writing, Binding and Printing.
| Week Commencing | JUNE | JULY | AUGUST | SEPTEMBER |
| Finalise Objective | ||||
| Literature Review | ||||
| Draft Research Strategy | ||||
| Data Collection | ||||
| Analyse Data | ||||
| Draft Findings Chapter | ||||
| Update Literature Read | ||||
| Writing | ||||
| Draft to Supervisor for Feedback | ||||
| Revise Draft | ||||
| Print, Bind | ||||
| Submission |
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Benn Steil, The End of National Currency. Foreign Affairs: Vol. 86, Issue 3, May/June 2007: pages 83-96
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