The Euro

The Euro

The question of whether Britain should gravitate toward adopting the euro is indeed an enormous one. It is enormous in that it covers many levels of importance, and its effects can be measured differently according to whom you ask. To some it is a matter of relative insignificance (like the savings in currency exchange when you go on vacation), and to others it is paramount (as in who will be running the country's economy?). I firmly believe that Britain should not adopt the euro although they have joined the EU because doing so renders them powerless in the control of their economic future.

No matter how you look at it or what level of importance you attach to it, the fact remains that Britain is going to have to make a decision about the eventual adoption of the euro. Being a member of the EU, it is imperative that Britain either falls in step and works toward stabilizing the strength of the euro, or makes a permanent commitment to the pound. This would be best for all involved. It would allow the people to make financial decisions that will affect the rest of their lives, or in the case of the alternative, allow them to absorb the changes the new currency will present. Whatever they decide will forever change the face of Britain. Will it be a face that they can live with? Should Britain even bother to change their face? In order to reasonably understand the current euro situation, it is Important that we first realize its origins.

The elected governments of Member States together created and developed the euro, a name that was developed in Madrid and adopted by the European Council in December 1995. Established on June 1, 1999, the European Central Bank (ECB) based in Frankfurt am Main, Germany, aims to maintain price stability and to conduct a single monetary policy across the euro area. The actual euro was launched on January 1, 1999 as an electronic currency used by banks, foreign exchange dealers, big firms, and stock dealers. It became legal tender on January 1, 2002, but attempts to create a single currency go back nearly fifty years.

The best way to illustrate the conception of the Euro is to divide it into three stages. Stage one would have to be the Treaty of Rome (1957), which declared a common European market as the European objective. The goal of this objective was to achieve increased economic prosperity, which would in turn lead to a more united Europe. Stage two would be the Single European Act (1986) and the Treaty on European Union (1992). The two combined have taken the goals of the Treaty of Rome and built upon them. In building upon those goals the Economic and Monetary Union (EMU) was introduced, and the foundations for a single currency were laid.

Stage three began on January 1, 1999 when the exchange rates of the participating currencies were irrevocably set. Member States of the European Union, meeting in the Dutch town of Maastricht, began implementing a common monetary policy, the euro was introduced as a legal currency and the eleven currencies of the participating Member States became subdivisions of the euro. Greece joined on January 1, 2002 bringing the Member States total to twelve. These twelve Member States introduced the new euro banknotes and coins at the beginning of that same year. There were strict criteria for joining the Euro Zone, including targets for inflation, interest rates and budget deficits.

The true birth of the idea of a single currency was a result of the economic crisis of the 1970s that led to the first plans for a single currency. The system of fixed exchange rates tagged to the US dollar was abandoned. European leaders agreed to create a "currency snake" (Grabbe, 1997), tying together European currencies. But the system immediately came under pressure from the strong dollar, causing problems for some of the weaker European economies.

When the twelve Member States converted to the euro it made history. This conversion represents the largest monetary conversion the world has ever seen. The success of the euro is paramount if a true "Europe" is to ever be realized. For this realization to occur, the free movement of goods, currency, people, and utilities must be allowed to take place. Accepting the euro is definitely a step in that direction, but is it a step that Britain should be willing to take?

Britain's conversion to the euro is laced with problems. One problem, which may be simple on the surface but has deep-felt implications, is image or pride. Many people simply do not want to part with the pound sterling, a currency they've known all their lives. Britain's identity rests in the pound sterling, why should they give up their identity? The problem that immediately faces Britain is one of convenience and expense. It will throw up major challenges for the banking and retail sectors that could prove costly in the short-term. As things stand now, Britain is "cyclically out of step with the euro-zone: joining now would be bad for Britain and, bad for the existing members, which are in enough trouble already" (The Economist v. 367 June 14-20, 2003 p. 13).

It will make it easier to travel and do business across Europe, but it also throws up broader questions of convenience and expense to Britain. As was the case in Germany:

"Shopkeepers carry the biggest burden in that they will in effect find themselves converted into the unofficial moneychangers of Britain. This will undoubtedly cost them huge amounts of money- for new tills, staff training and extra security. Probably hardest hit will be small firms that handle lots of cash, like bakeries, markets and convenience stores." (The History Of The Euro, 2002)

This in itself is ironic; because it was the small "domestically oriented" firms who favored joining the euro in the beginning but have since changed their tune (Cooling 2003, p. 59). These are just problems of convenience and being such they are not insurmountable. Member States in the EU have shown us that much. The main issue about European Monetary Union is that all the countries in it will have the same single interest rate and that's one of the things that are causing the real problems for Germany and France at the moment.

Germany and France are prime examples of the pitfalls that go hand and hand with the euro. If the people of Britain want an accurate assessment of the euro at work, all they have to do is look at the state of these two economies. With the economic growth at a virtual stand still and unemployment on an upward climb, major economies such as Germany and France find themselves slipping into recession. This recession in turn has put the two countries in violation of the Stability and Growth Pact