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Cini: European Union Politics 2e

Chapter 20

Britain and the Euro

Britain entered the Exchange Rate Mechanism (ERM) in 1990, only to exit from it in 1992. After the European Monetary System (EMS) in the early 1990s the leaders of continental European countries, notably Chancellor Kohl of Germany and President Mitterrand of France, decided to embark on monetary union. In the Maastricht Treaty Britain (with Denmark) negotiated an opt-out from this monetary union. Since then, there has been an ongoing debate about whether Britain should join the Euro. The UK government set five economic tests in October 1997 and June 2003, which must be passed before it can recommend that the UK join the Euro. The most recent assessment on Britain's entry to the Euro was announced on 9 June 2003 and it concluded that Britain is not yet ready to join the euro according to the five economic tests (a full report is available on www.hm-treasury.gov.uk/). Although opinion polls consistently report a majority of the public to be opposed to joining the Euro, there are advantages to be gained such as removal of exchange rate risk and deeper financial markets. However, the comparison of economic costs/benefits of the Euro does not seem to be the decisive factor in Britain joining the Euro; rather, British domestic politics and public opinion become more important, as all three main political parties in the UK have promised to hold a referendum before joining the Euro.

Web Links

Activities of the European Union – Economic and Monetary Affairs
europa.eu.int/pol/emu/index_en.htm

Monetary Union for Business
www.eubusiness.com/emu/

EurActiv.com on the EU Economy and euro
www.euractiv.com/en/euro

Special Report on the euro by the Financial Times
specials.ft.com/euro/FT3O9H0O2PC.html

Further Learning Resources

Wyplosz, Charles (1997), 'EMU: How and Why it might happen', Journal of Economic Perspectives, Vol.11, No.4, pp.3-32.

Kathleen R. McNamara (1998), The Currency of Ideas: Monetary Politics in the European Union. Ithaca, Cornell University Press.

Buiter, Willem, H. (1999), 'Alice in Euroland', Journal of Common Market Studies, Vo. 37, No.2, pp.181-209.

Issing, Otmar (1999), 'The Eurosystem: Transparent and Accountable or 'Willem in Euroland', Journal of Common Market Studies, Vol. 37, No.3, pp.503-19.

Dyson, Kenneth and Featherstone, Kevin (1999), The Road to Maastricht: Negotiating Economic and Monetary Union, Oxford, Oxford University Press.