An Evaluation of the Advantages and Disadvantages of Adopting the Euro. a Case Study of the Uk

Title of essay: An evaluation of the advantages and disadvantages of adopting the Euro. A case study of The UK

I. Introduction

According to European Commission (2011a), a new common currency in Europe was announced on the first day of January 1999. At that time, there were eleven European countries decided to join the Euro and the Euro was introduced instead of their own currencies. The Euro has been adopted as a main currency of the country members, including Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxemburg, the Netherlands, Portugal and Spain. In order to be accepted to use the Euro, these countries had to agree with the conditions called “convergence criteria” about the price and exchange-rate stability, long-term interest rates, total government debt, government budget deficits, and central bank independence. These aspects will be discussed specifically in this essay.

In the early stages of announcing and using the Euro, four members of the EU still remained separate from the Euro, namely Denmark, Great Britain, Greece, and Sweden. Later, in 2000, Greece changed its decision to accomplish the agreement. In 2001, it started adopting the Euro.

At the present time, there are 17 out of 27 EU countries using the Euro as an official currency, which makes it become one of the most important currencies in the world. In the future, apart from Denmark and Britain, all other members of the EU will adopt the Euro. It should be known that only Latvia and Romania have a target date for joining the Euro in 2014 and 2015 respectively (European commission, 2011b). This essay will critically examine the pros and cons of adopting the Euro, using the UK as a particular case study.

II. Body

1. Background of the Euro.

According to Szasz (1999), after the Second World War, some European politicians had an idea of European integration. In 1957, the agreement of Rome was indorsed by Belgium, France, West Germany, Italy, Luxemburg, and the Netherlands. Later, the European Economic Community was created. In 1969, the European Monetary Union (EMU) was formed by the European Community as a milestone in the whole process of monetary integration. Unfortunately, it did not succeed.

The year 1979 was an important point in the process of monetary integration in Europe. The European Monetary System (EMS), whose cores are the European Currency Unit (ECU) and Exchange Rate Mechanism (ERM) was generated. In this system, a central rate was calculated and used to find a grid of mutual central rate. The oscillation bands at 2.25% on the side of the central rate were set for most currencies except some weak currencies with margin of 6% (Szasz, 1999). After 1992-1993 ERM crises, the European Community decided to increase the bands up to 15% in most currencies except the Deutsche