Advantages and Disadvantages of Adopting the Euro

Advantages and Dis reinforcements of Adopting the EuroA Study of the Benefits and Costs which Might Result for UK-based Firms Should the UK Adopt the EuroName Louise TibagalikaIntroductionThe euro is the single currency established in 1999, currently dual-lane by 18 countries of the atomic number 63an Unions Member States (Ec.europa.eu, 2014). Due to the number of advantages such(prenominal) as the stimulation of shargon and disadvantages such as economic instability, the decision for the UK to adopt the euro is a big economic and political debate at present which support affect businesses and the public in many ways. The sideline report impart look at the advantages and disadvantages for businesses and answer the wonder as to whether the UK government should proceed with the decision.ObjectivesAssess the benefits of the UK adopting the EUROAssess the drawbacks associated with the UK adopting the EUROHow businesses bear utilise these benefits and survive in the internationa l marketLook at the political, economic, social and environmental factorsProvide workplace and personal experienceMethodologyIn order to achieve the goals set above, a variety of different sources reserve to be explored. The core text International business by Wall, S., Minocha, S. and Rees, B. and Macroeconomics By Edward Gamber and David C Colander argon secure places to start as they give a good background on international business and the different factors that effect businesses looking to expand on an international level.To fully assess and answer the posed question the following sources go forth be usefulAdopting the Euro in Central Europe, Challenges of the Next Step in European Integration Occasional Paper. 234 (IMFs Occasional Papers) by Susan SchadlerBritain and the European Union Frequently Asked Questions By Stuart NotholtBritain, the Euro and Beyond by Baimbridge and WhymanEuropean Economic and Monetary Integration, and the Optimum specie Area Theory by Mongelli, F. P.These sources give good background on the problem and withal give different opinions as to the pros and cons associated with adopting the euro. They also provide connect to various other sources and explain why this has been an on-going debate for the UK since the European Union formed.As the debate about the UK adopting the euro is consistently in the news and is a practically talked about issue imputable to the economic and political implications, in that location pass on be a number of web based sources that will be explored such asEc.europa.eu 2014 The euro European CommissionS-cool.co.uk. 2014 A-level Economics The Euro Revision Should the UK Join the iodine Currency?News.bbc.co.uk. 1997 BBC News wiz currency Pros and Cons.Wei, L. 2009 Your portal to the world Pro Cons For UK When Adopting Euro.European Commission Europa. 2011. How the euro benefit us all.Econ.economicshelp.org. 2007. Economics Essays Why the UK will never gather the EUROThese amongst other o nline sources will also give different opinions on the question asked and will be useful as a source before further reading or research is carried out. With the various forums online and the above sources, there will be a large amount of informationMain BodyAdvantages of the EuroThe Economic and Monetary Union (EMU) was established to allow the European economy to modus operandi well bringing more jobs and greater prosperity for Europeans (European Commission Europa, 2011). There are many benefits to adopting the euro for the UK and for businesses alike which include eliminating risks and cutting costs.The main benefit for businesses is that out-of-pocket to the single currency there will be no costs in exchanging currencies with EU countries which will result in the unbelief for businesses being reduced. This will help to improve economic welfare and also remove the risk of unforeseen alter rate revaluations or devaluations (Historylearningsite.co.uk, 2013 Irons and Colander, 2002). Due to the fluctuating ex transport rates, businesses would have to take into consideration either export prices being higher(prenominal) or companies being discouraged from exporting within a single market. accordingly by adopting the euro the UK will have more opportunities for cross-border trade (Ec.europa.eu, 2013 Cenue and Drig, 2010). This would be more beneficial to medium sized UK businesses as they cannot currently take advantage of operating in the euro-zone and gaining profit like Shell and Vodafone and other larger companies.The interest rate of the Bank of England and other central banks is known to be volatile. With a single currency the European Central Bank will focus on economic conditions across the board helping to lower the interest rate. This will be beneficial for investment and growth as the strength of the currency will improve (Ec.europa.eu, 2013). By keeping the interest rate low or stable, this can improve profitability of exports and more business es will want to invest in UK firms. Also less volatile interest rates will allow businesses to borrow at cheaper rates and also invest more confidently in the long term (Ec.europa.eu, 2013 Irons and Colander, 2002). For this reason the Japanese company Mitsubishi corporation is keen for the switch and theBy joining the EU, UK businesses will be open to price foil and reduction of information costs. The single currency will also allow consumers and businesses to compare prices which will help reduce the costs of raw materials and further murder their customers happy with lower prices (Baimbridge and Whyman, 2008 Ec.europa.eu, 2013). For example new cars in Europe cost less than new cars in the UK, a single currency will remove this price differential. Also the euro will allow better rise to power as investors will no longer be limited to a local market and investors can move capital to areas where it will be employ more effectively (Baimbridge and Whyman, 2008 Ec.europa.eu, 2013 ).The UK is also known to have a very successful dig up market and within a single currency this would be highly beneficial not only in that the inflation rate will go brush up but also as battle will be sustained (Mongelli, 2008). This could also be very useful for SMEs as well as large organisations due to prices going down and hopefully competitiveness will promote more business.Arguments against adopting the EuroAlthough the arguments for adopting the euro seem unfluctuating, some of the positives can be changed into points to support the UK keeping the sterling.By adopting the euro, the UK may be open to instability, lower growth, higher unemployment and economic decline due to not being able to set their own interest rates based on the national economy (Kern, 2002). Although devaluations can be detrimental in some cases, it has been demonstrated in the past that well-chosen devaluations can help an economy out of difficulties. For example during the economic downswing in 20 08, many economies of countries within the euro, such as Spain, could not stimulate their own economy by devaluing their currency and therefore increasing exports, this saw their businesses and economies flunk and finding it difficult to recover (Historylearningsite.co.uk, 2013 Baimbridge and Whyman, 2008).The physical conversion from sterling to euros will have many costs for banks and retailers which the UK Government is unlikely to cover, such as readiness staff, changing computer software, creating open euro bank accounts and educating customers. The British Retailing Consortium estimates that British retailers will have to pay between 1.7 billion and 3.5 billion to make the changes necessary (Baimbridge and Whyman, 2008). This will affect SMEs, which will not benefit directly from the adoption of the euro and they could potentially force marginal firms out of business and give countries that are not in the euro a competitive advantage. According to the KPMG report, an estimat ed 3,000 rms face total costs of up to 56.5 million (35.8 million) (Baimbridge and Whyman, 2008).UK pipelinees may also have to drive down prices due to the combination of improved availability of information and price transparency. This will be especially troublesome for products that are accessible to cross border trade and will be reinforced by internet shopping (Baimbridge and Whyman, 2008). Inefficient firms will suffer mostly from this and profits will be reduced due to higher levels of competition.Joining the euro would mean that the UK would have to adhere to new labour rules which in some cases govern how employees are hired and fired (Baimbridge and Whyman, 2008 Econ.economicshelp.org, 2007)). As the labour market is more flexible in the UK than it is in others in the euro and UK firms have more independence with employment, joining would be detrimental for the firms as the cost of occupation would increase and unions would have more power (S-cool.co.uk, 2014 Brugesgroup .com, 2014).Results and ConclusionsBased on the findings above the general benefits for the UK businesses adopting the euro are as followsLower transaction costsReducing the uncertainty affecting the profitability of international transactionsLower cost of capitalImproved allocation of capitalBetter use of the common monetary militiaReducing losses due to different rates of inflation within EMU member countriesImproving macroeconomic management and cooperationImproving macroeconomic stabilization within EU Member StatesThe costs for UK businesses on the other hand are as followsDeflation and economic instabilityCosts of changeLoss of income resulting from exit currencyIncrease of costs necessary to make shock adjustmentsLower economic growth ratesLess flexible labour market compare the two lists, it would seem that it wold be best for the UK to adopt euro as businesses would benefit from the lower transaction costs, lower cost of capital and better price transparency which could lower invoices and costs of raw materials. This as discussed would benefit customers and could help to boost business. So ultimately it seems that the higher capital costs and an overvalued exchange rate are the results of not joining the euro as well as receiving fewer European visitors (Rickard, S 2002).The costs of the UK adopting the euro seem short term, such as the costs of change and the loss of income due to issuing the new currency. However the less flexible labour market, deflation and the lower economic growth seem to be major factors that have caused the UK to delay the decision to adopt the euro. Those who support the single currency must consider that loss of control over monetary and exchange rate policy may weaken national economic management which, looking at previously strong economies like Germany will have a large tinct on trade and business (Cenue, M, Drig, 2010 Baimbridge and Whyman, 2008)Ultimately there are many factors that need to be considered should th e UK decide to adopt the euro or stick with the sterling. The fact that there are political and economic arguments makes it harder to come to a simple decision, and although it appears that the benefits are great, the costs need to be carefully considered as businesses need a strong economy to survive and flourish. Baimbridge and Whyman (2008) quote Healey (2000 1920) who states that while the benets are signicant, cumulative over time and reasonably uncontroversial, the costs are much more uncertain, astray exaggerated and almost certain to diminish with the passage of timeBibliographyBaimbridge, M. and Whyman, P. 2008. Britain, the Euro and beyond. Aldershot, England Ashgate. eBook Collection (EBSCOhost), EBSCOhost Viewed 9 February 2014.Brugesgroup.com. 2014. From Single Market to Single Currency Evaluating Europes EconomicExperiment. online Available at http//www.brugesgroup.com/mediacentre/index.live? word=74 Accessed 10 Feb 2014.Cenue, M, Drig, 2010, Advantages And Disadvant ages Of The Euro, Annals Of The University Of Petrosani Economics, 10, 3, pp. 61-68, Business Source Complete, EBSCOhost, Viewed 9 February 2014.Currencysolutions.co.uk. 2011. The Unpredictable Character of British Pound And The Euro Exchange Rate. online Available at http//www.currencysolutions.co.uk/euro/the-unpredictable-character-of-british-pound-and-the-euro-exchange-rate Accessed 9 Feb 2014.Ec.europa.eu. 2013. Business benefits European Commission. online Available at http//ec.europa.eu/economy_finance/euro/why/business/index_en.htm Accessed 8 Feb 2014.Ec.europa.eu. 2014. The euro European Commission. online Available at http//ec.europa.eu/economy_finance/euro/ Accessed 9 Feb 2014.Econ.economicshelp.org. 2007. Economics Essays Why the UK will never join the EURO.. online Available at http//econ.economicshelp.org/2007/03/why-uk-will-never-join-euro.html Accessed 9 Feb 2014.European Commission Europa. 2011. How the euro benefit us all. online Available at http//ec.europa.eu/e conomy_finance/general/pdf/how_the_euro_benefits_us_all_en.pdf Accessed 8 Feb 2014.Historylearningsite.co.uk. 2013. What are the arguments for and against joining the Euro. online Available at http//www.historylearningsite.co.uk/euro.htm Accessed 8 Feb 2014.Irons, J. S. and Colander, D. C. 2002. Study guide for Macroeconomics by David C. Colander, Edward N. Gamber. Upper Saddle River, N.J. Prentice Hall.Kern, D. 2002. British Chamber of affair Economic Briefing, paper presented at British Chamber of Commerce Economic Briefing, London, 17 February. London British Chamber of Commerce.Mongelli, F. P. 2008. European economic and monetary integration, and the optimum currency area theory. Brussels Office for Infrastructures and Logistics.News.bbc.co.uk. 1997. BBC News Single currency Pros and cons. online Available at http//news.bbc.co.uk/1/hi/special_report/single_currency/25081.stm Accessed 8 Feb 2014.Rickard, S 2002, E-Day the Impact of the Euro on UK Business, Credit Control, 23, 1, p. 14, MasterFILE Premier, EBSCOhost, Viewed 9 February 2014.S-cool.co.uk. 2014. A-level Economics The Euro Revision Should the UK Join the Single Currency? S-cool, the revision website. online Available at http//www.s-cool.co.uk/a-level/economics/the-euro/revise-it/should-the-uk-join-the-single-currency Accessed 10 Feb 2014.Wall, S., Minocha, S. and Rees, B. 2010. International business. Harlow, England Pearson/ Financial Times Prentice Hall.Wei, L. 2009. Your portal to the world Pro Cons For UK When Adopting Euro. online Available at http//econsguide.blogspot.co.uk/2009/02/why-is-uk-considered-wise-to-choose.html Accessed 9 Feb 2014.