BRITAIN JOIN THE EU

Advantages

1. Transaction costs will be eliminated.
For instance, UK firms currently spend about £1.5 billion a year buying and selling foreign currencies to do business in the EU.
With the EMU this is eliminated, so increasing profitability of EU firms.

* Advice to young people: You can go on holiday and not have to worry about getting your money changed, therefore avoiding high conversion charges.

2. Price transparency.
EU firms and households often find it difficult to accurately compare the prices of goods, services and resources across the EU because of the distorting effects of exchange rate differences.
This discourages trade. According to economic theory, prices should act as a mechanism to allocate resources in an optimal way, so as to improve economic efficiency. There is a far greater chance of this happening across an area where E.M.U exists.


Disadvantages

1. The instability of the system.
Throughout most of the 1980s the UK refused to join the ERM (Exchange rate mechanism). It argued that it would be impossible to maintain exchange rate stability within the ERM, especially in the early 1980s when the pound was a petro-currency and when the UK inflation rate was consistently above that of Germany. When the UK joined the ERM in 1990 there had been three years of relative currency stability in Europe and it looked as though the system had become relatively robust. The events of Sept. 1992, when the UK and Italy were forced to leave the system, showed that the system was much less robust than had been thought.

2. Over estimation of Trade benefits.
Some economists argue that the trade and cost advantages of EMU have been grossly overestimated. There is little to be gained from moving from the present system which has some stability built into it, to the rigidities which EMU would bring.
3.  Loss of Sovereignty.
On the political side, it is argued that an independent central bank is undemocratic. Governments must be able to control the actions of the central banks because Governments have been democratically elected by the people, whereas an independent central bank would be controlled by a non elected body. Moreover, there would be a considerable loss of sovereignty. Power would be transferred from London to Brussels. This would be highly undesirable because national governments would lose the ability to control policy. It would be one more step down the road towards a Europe where Brussels was akin to Westminster and Westminster akin to a local authority.