Musthafa Ebadi
Britain's Reluctance To Join Euro A Blessing?
by Musthafa Ebadi on August 25th, 2011

Monday, May 31, 2010

The Euro is a single currency arrangement that came into theoretical operation between 11 members of the European Union in January 1999. On January 1st 2002, 12 EU members Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, and Spain got rid of their own currencies and introduced the Euro as their sole currency.
Later on additional four new states of Malta, Cyprus, Slovenia, and Slovakia would join to put the number of countries forming EuroZone to 16.

On Monday June 9th 2003 – exactly 7 years ago from next Tuesday – when the then Chancellor of the Exchequer Mr. Gordon Brown told the house of commons that Britain is not yet ready to join the single currency it indeed was a controversial decision.

In order for Britain to join the single currency Euro Chancellor Brown had set five economic tests as the criteria for Britain Government that are to be used to assess the UK's readiness to join the Economic and Monetary Union of the European Union(EMU).
Mr. Gordon Brown testified that while UK's economy had passed his financial services test it had indeed failed the tests on sustainable convergence, economic flexibility, investment, and employment.

One of the strongest arguments that was used in summer of 2003 for Britain not to join the single currency was that in a recession a country can no longer stimulate its economy by devaluing its currency and increasing exports.

In 2010 fears of a sovereign debt crisis or the 2010 Euro Crisis developed concerning some countries in Europe including: Greece, Ireland, Spain, and Portugal. This led to a crisis of confidence as well as the widening of bond yield spreads and risk insurance on credit default swaps between these countries and other EU members, most importantly Germany.

Concern about rising government deficits and debt levels globally coupled with downgrading of European Government debt created alarm on financial markets. The debt crisis mainly centred around Greece and its recent events of rising cost of financing government debt.

All the major stock market saw a sharp decline, with European Markets bearing the brunt of this anticipated crisis, and the economies of the EuroZone countries were severely impacted for second time in less than two years – the first impact as a result of global recession of 2008.
Not only the economies of EuroZone were impacted by this crisis they also had to participate with the International Monetary Fund to a €110 billion loan for Greece granted on May 2nd 2010, conditional on the implementation of harsh Greek austerity measures. Further more on 9 May 2010, Europe's Finance Ministers approved a comprehensive rescue package worth almost a trillion dollars aimed at ensuring financial stability across Europe.

There is no doubt that such a great crisis would have its affects globally however the adversely impacted countries were the EuroZone while it had its least affects on various countries including United States of America, Canada, and Britain.

So was the Britain’s reluctance to join the single European currency a blessing? Chancellor Gordon Brown’s decision not to bow to such pressure had, in hindsight, been the right move?

The above two questions are as strongly debated across all the spectrum of the globe as the decision of not joining the single currency by Britain. Was that decision the right one or not? What do you think?

Thanks for reading.


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