European Monetary Union

European Monetary Union is the plan for a single European bank and a single European currency – the euro Countries wishing to join the Euro have to meet convergence criteria.

There are currently (april 2007) 13 EU countries that use the Euro

Advantages to the UK of joining the Euro

• The Euro could improve productivity by increases trade flows between member countries
• Investment in the UK would increase
• Increased price transparency would allow consumers and businesses to compare relative prices
• Costs of changing £ to euros for trade would disappear
• There would be a reduction in business uncertainty
• It would enhance the working of the single European market
• There would be political and economic benefits

Disadvantages of the UK joining the Euro

• Historical reasons – similar currency unions have collapsed previously
• Lack of economic convergence of member states
• Loss of domestic monetary freedom – UK will no longer be able to set own interest rate which has worked very successfully since 1997
• Adjustment costs
• Constraints of the fiscal stability pact