The Euro

[Kilrov]

Thought id start off another debate, do you think that Britain should accept the Euro?

Personally, im about as strongly against it as is possible. I think the economic tests run earlier this year pretty much proved how bad for us it would be. On a different level I just think that sterling is one of the few things we have left as a nation.

[Punky]

i vote for 'Yes, when it becomes more economically viable', because it will make business easier, plus sterling doesn't really represent much anymore for britain.

[Agent]

Originally posted by not_your_punk
plus sterling doesn't really represent much anymore for britain.

Maybe for you, not everyone feels that way.

[Slick]

I voted for "yes when it become economically viable" but I think my views are more "no, unless it becomes economically viable". I'm not against it because of the sovereignty issues etc but I think it would be terrible for the economy.

Firstly interest rates would be set by the central european monetary policy, this would lose our ability to use interest rates to help our economy. To a certain extent we would lose control of fiscal policy as well as we wouldn't be able to have a policy out of sync with europe. This is why Germany's economy is in such a bad state at the minute.

It would also damage our balance of payments as more british people would buy imports. There would be an impossibility of a devaluation which could result in unemployment, this happened when we went on the ERM and made the recession worse.

I'm not 100% against it as I can see some benefits but I can't see how these would outweigh the disadvantages and we're more likely to go in for political reasons.

[TeePee]

Yes, but the notes should have the queens head on one side and a spitfire on the other...

[DaBeeeenster]

Oh dear. Right then. Where's Saracen? I have my spanking stool at the ready :bg:

I was waiting for this subject to come up on the new forums. My position on the Euro is vehemently pro. Unusually for me, the reasons for my position are mainly emotional; my father is German and a large part of my family live in Germany/France/Switzerland. Europe has transformed itself from the hell that had been created by the fascists in the second world war. I am tremendously proud of the way all Europeans have dealt with and moved forward from those times, building a better, more peaceful and more united Europe. I think the widespread adoption of the Euro to be the most important part of this integrationist politic.

I agree that there are serious and significant short term economic issues that need to be debated and overcome, but I see no reasoned argument against the adoption of the euro in the long term. Since I hate short term politics, again I find myself arguing for the Euro.

Can someone explain to me what the "sovereignty issues" are?

[Slick]

Originally posted by DaBeeeenster
Can someone explain to me what the "sovereignty issues" are?

I think the sovereignty issues are irrational but all of the economic issues I raised are long term and won't go away, I didn't mention the short term problems like the convergency costs. I see what you're saying in that politically it would be a good move and bringing us closer to Europe but I think our economy should come before that or we'll have a repetition of the ERM.

[DaBeeeenster]

I dont think that the situation that occured with the ERM can be compared with the adoption of the Euro.

In terms of economic issues, the French and German economy has not collapsed. I agree that there are difficulties within the German economy, but they were present prior to the introduction of the Euro.

I think that the US dollar definitely needs another solid currency to give it some sort of balance. If people started trading things like oil in Euros instead of dollars, the world would be a very different place IMHO...As it stands the dollar is shored up by oil...

[Slick]

Originally posted by DaBeeeenster
I dont think that the situation that occured with the ERM can be compared with the adoption of the Euro.

In terms of economic issues, the French and German economy has not collapsed. I agree that there are difficulties within the German economy, but they were present prior to the introduction of the Euro.

Why can't it be compared? the same economic problems apply here. The German economy may have been having problems before but they have been worsened through joining the euro, they have had low consumption and needed a low interest rate to boost it. As they no longer set interest rates and the rest of europe wanted a higher interest rate, it remained high...keeping consumption low, damaging business and causing unemployment. This is just an example of a problem we are likely to face, especially since the british economy is very different to others in europe.

[DaBeeeenster]

The problems with the ERM were effected by exposing Sterling to an open and competitive marketplace. Although I agree that there are serious economic issues surrounding the Euro I think that making a comparison with the ERM is clouding the issue.

The main economic sticking point with most people is that of Interest Rates. I have not really heard any other reasoned and definitive points against joining the Euro (other than emotional ones). I agree that this is a big issue, and it should be addressed, but it has nothing to do with the ERM, and there are no similarities between the two subjects IMHO.

I posted the following on another board:

We live in a global economy. The chaos theory cliche regading the butterfly flapping its wings and causing a tsunami is never more true than in the global economic market. I'm no economist, but I can see what is going on, and it is clear that the net effect of globalisation is a continual erosion of a countries ability to control its own economy.

Secondly, surely the argument of interest rate control could be applied on a micro, as opposed to macro scale. If we want to control the interest rate within the UK as part of the Eurozone, why not control the interest rate within areas of Britain as part of the UK as a whole? Why not set a different interest rate in, say, Blackburn to the one in Chelsea? If a single interest rate can "work" throughout the UK which, without argument, has an enormous variety of economically productive areas, why can it not work on a pan-european scale?

Finally, I cannot see the French or German economy going inflation mad. I do not see house prices in France or Germany spiralling out of control.

[acidrainy]

Originally posted by DaBeeeenster
I do not see house prices in France or Germany spiralling out of control.

Just a small view on this comment....

I don't think this will ever be controlled in this country..
It seems to much at fault of the British idealistic, My home is my castle, IMHO

Certainly from talking to friends that live elsewhere in Europe, a home is a place of living... The home is not a "Castle", its a place to live....

Bricks & Mortar seems to be the way we try and "get one up on" the next person. Everyone wants to make a huge profit on their "Castle". It's within this greed driven market that we only have ourselves to blame.....


Anyway, thats my grumble on house prices over

[DaBeeeenster]

House prices are like that all over the world.

Part of my argument in the previous post is that the world economy tends to follow the US economy. If the Federal Reserve drop interest rates, you can be pretty sure that the Bank of England will do the same in a few months time.

The idea that we set our own interest rates based on the current situation within the UK is a myth IMHO...

[TeePee]

There is no global economy!

Sure, theres an international market, but it hasn't progressed anywhere near as far as being a global economy.

Globalization can be defined as ‘the further internationalization of economic activity, in terms of greater interdependence and integration between economies and economic activity’. This definition of Globalization is based on two key factors, greater interdependence and greater integration between economies. Greater interdependence can be shown by the growth in international trade, along with some overseas investment, where the company desires to spread production overseas. The integration aspect of the definition can also be shown by overseas investment, where the objective is for the company to produce parts in different locations, with the end product manufactured elsewhere. These two factors represent the abilities of economies to produce and accumulate, which are the key elements of a global economy.
The best way to measure international trade, is as a ratio of merchandise trade to GDP based on current prices. Using these figures, it can be shown that trade openness has remained more or less constant since the First World War.
The degree of integration between economies can be measured by the extent of capital flows, or the borrowing or lending of capital between countries. This occurs where a company wishing to set up in another country lends to the country in which it wants to operate. This is called Foreign Direct Investment and has been increasing since the 1960’s, but showed a sharp rise during the 1980’s, and it is this growth which is seen as a strong indication of increasing globalization, as it shows companies spreading their production to other countries. If the figures for Foreign Direct Investment are expressed as a percentage of GDP, they still show an increase, but there was greater investment during the Gold Standard period prior to 1914. Even with the growth, in 1995 Foreign Direct Investment only represented a little over five percent of the world’s capital formation, which means the vast bulk of financing must come from domestic sources. This is far from an integrated system as it’s certainly not integrated enough for one country to be able to borrow enough to affect their domestic economy.
For a global economy, all the agents within the system, including the multinational companies, would be controlled by the market forces within the system. Since the national economies are still in control of economic decision making, the market has far less control over the agents operating within it, as would exist in a global economy.

[Slick]

Originally posted by DaBeeeenster
The problems with the ERM were effected by exposing Sterling to an open and competitive marketplace. Although I agree that there are serious economic issues surrounding the Euro I think that making a comparison with the ERM is clouding the issue.

The main economic sticking point with most people is that of Interest Rates. I have not really heard any other reasoned and definitive points against joining the Euro (other than emotional ones).

How about the impossibility of devaluation? This is another economic reason and happened when we were joining the ERM. At the moment if we have high inflation this will lower the exchange rate, which in turn will lower the price of our exports and raise the price of imports, this will then increase demand for our products and help reduce unemployment etc. With a fixed system this is not the case, we are unable to benefit from such market mechanisms and the value or a currency no longer reflects how competitive a country is.

Originally posted by DaBeeeenster
surely the argument of interest rate control could be applied on a micro, as opposed to macro scale. If we want to control the interest rate within the UK as part of the Eurozone, why not control the interest rate within areas of Britain as part of the UK as a whole? Why not set a different interest rate in, say, Blackburn to the one in Chelsea? If a single interest rate can "work" throughout the UK which, without argument, has an enormous variety of economically productive areas, why can it not work on a pan-european scale?

Well in theory it probably would be better to have different interest rates in parts of Britain but this wouldn't work. If people could get a loan in a low interest area and then go down the road and put their savings in a high one, interest rates would then become a very ineffective way of helping the economy.

You're right in that the UK has a large variety of economically productive areas but we are a lot more economically different than other areas in Europe. If all economies in Europe suffered the same problems at the same time then this wouldn't be an issue but this is not a realistic presumption, like I gave the example of Germany earlier.

Originally posted by DaBeeeenster
Part of my argument in the previous post is that the world economy tends to follow the US economy. If the Federal Reserve drop interest rates, you can be pretty sure that the Bank of England will do the same in a few months time.

The idea that we set our own interest rates based on the current situation within the UK is a myth IMHO...

Our economy may follow the US as we are heavily integrated with them due to language etc. But this is more of a reason not to join imo, if our interest rates are reflecting the conditions in the rest of Europe but the bulk of our trade is with America so we are under similar conditions of America the interest rates won't be favourable to us.

[DaBeeeenster]

Originally posted by TeePee
There is no global economy!

Sure, theres an international market, but it hasn't progressed anywhere near as far as being a global economy.

Globalization can be defined as ‘the further internationalization of economic activity, in terms of greater interdependence and integration between economies and economic activity’. This definition of Globalization is based on two key factors, greater interdependence and greater integration between economies. Greater interdependence can be shown by the growth in international trade, along with some overseas investment, where the company desires to spread production overseas. The integration aspect of the definition can also be shown by overseas investment, where the objective is for the company to produce parts in different locations, with the end product manufactured elsewhere. These two factors represent the abilities of economies to produce and accumulate, which are the key elements of a global economy.
The best way to measure international trade, is as a ratio of merchandise trade to GDP based on current prices. Using these figures, it can be shown that trade openness has remained more or less constant since the First World War.
The degree of integration between economies can be measured by the extent of capital flows, or the borrowing or lending of capital between countries. This occurs where a company wishing to set up in another country lends to the country in which it wants to operate. This is called Foreign Direct Investment and has been increasing since the 1960’s, but showed a sharp rise during the 1980’s, and it is this growth which is seen as a strong indication of increasing globalization, as it shows companies spreading their production to other countries. If the figures for Foreign Direct Investment are expressed as a percentage of GDP, they still show an increase, but there was greater investment during the Gold Standard period prior to 1914. Even with the growth, in 1995 Foreign Direct Investment only represented a little over five percent of the world’s capital formation, which means the vast bulk of financing must come from domestic sources. This is far from an integrated system as it’s certainly not integrated enough for one country to be able to borrow enough to affect their domestic economy.
For a global economy, all the agents within the system, including the multinational companies, would be controlled by the market forces within the system. Since the national economies are still in control of economic decision making, the market has far less control over the agents operating within it, as would exist in a global economy.

Call it what you will, the international markets bang to the beat of the same (American) drum.

[spikegifted]

When the Chancellor's '5 economic tests' are all satisfied, there'll be little or no economic reasons not the join the Euro. However, there're still plenty of political reasons not to join. Personally, whether the currency for this country is Sterling or dollars or Euro makes very little difference.

Whether people feel they're British or not has very to do with whether the country has the British Pound or not. However, it is more about what you believe in - is Britain a sovereign country even if we have a common currency with the rest of the EU and being part of the EU where a significant part of our laws are dictated by Brussels.

Don't forget, if you're unhappy with the decision of any law court in this country, you can always take the case to the European court. Moreover, the decision of the European court will over-rule the decision made even by the highest court of this country. Does this make you feel less British?