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Uk & euro club
- 1. WILL THE UK JOIN THE EURO CLUB ? GLORIVEE CRUZ RICHA ARORA
- 2. Brief History of the EU • 1957: European Economic Community (EEC) • 1979: European Monetary System (EMS) • 1991: Maastricht European Council • 1999: European Monetary Union (EMU) • 2002: Euro – the official currency used by euro-zone countries • European Central Bank (ECB)
- 3. The purpose of ‘Single’ currency • Integrate the national financial markets. • Higher efficiency in the allocation of capital in Europe. • Countries could no longer devalue their currencies against another. • Strengthen European Identity. • Making Euro the second most important reserve currency after US Dollar.
- 4. The UK & EU • History: – 1973: UK joined the EEC – 1979: EMS managed through ERM – 1992: Black Wednesday • Politics: – Eurosceptic – Europhiles – Public opinion – growing opposition towards adopting the euro
- 5. The UK & EU • Politics: – 5 Convergence criteria: – What is Price stability Sound public Sustainable public Durability of Exchange rate measured? finances finances convergence stability How it’s Consumer price Government Government debt Long-term interest Deviation form a measured? inflation rate deficit as % of GDP % as of GDP rate central rate Convergence No more than 1.5 Reference value: Reference value: Not more than 2% Participation in criteria % points above the not more than 3% Not more than points above rate ERM II for at leas 2 three best 60% of threes best years without performing performing sever tension members member states in price stability – Integration and UK’s political statues in Europe: • Seat/vote on the board of ECB • Relinquish control of monetary policy to ECB • Weakened political independence
- 6. The UK & EU • Economy: UK’s economy differs from euro-zone members – 1998: • Unemployment rate: 6.2% UK, EU averaged 10% • Public spending (of GDP): 40% UK, 54% France, 50% Italy, & 47% Germany • Gross public debt (of GDP): 53% UK, 122% in Italy, 61% in Germany, and58% in France – 2010-2011: • Unemployment has increased at a range between 8-10% • Debt problems: UK, the largest BCA balance account deficit, over 10% of GDP • Total debt has reached 61% of GDP and is expected to reach 71% in 2013
- 7. The UK & Euro Club • Pros: – Reduced transaction costs – Elimination of exchange rate uncertainty – Capital market development – Political Union • Cons: – Loss of independence over economic policy – Constraints over fiscal policy – ECB effective/efficient control over the EU
- 8. Greek Default- Europe’s Lehman Moment • Greece & Italy, masked their deficit and debt levels. • High levels of tax-evasion. • Early 2010, excessive national debt. • European govt. bonds lost value. • $115 billion bailout in 2010, by the European Central Bank. • S&P’s slashed Greece’s debt rating to BB+ (junk status) and further downgraded it to CCC (lowest in the world, June 2011)
- 9. How safe is UK from the crises? Britain was skeptical about the run up to the launch of the euro. So, they didn’t join it. • Any associated disruption to bank funding markets could spill over to UK banks. • Huge exposure in the Europe financial market. • UK at risk from a domino-fall of defaults.
- 10. Greek Debt Crises- Impacts on UK & US Huge pressure on UK’s Balance Sheet- • UK has around $14.7bn (£9.1bn) in exposure to Greek debt. • $136.6bn to Irish debt,(8 times its Greek exposure) and $100bn of Spanish exposure. • Euro-zone accounts for 40% of UK exports. (BBC News) Possible effects on US economy- • Hurt US exports in Europe. • Steep losses in the US financial market. • Cut back lending by banks.
- 11. The EU on life support • Europe has no national Treasury, which could force individual countries to bail out their own banks. • Belgium has not had a govt. in almost a year. • A default by Greece would raise its prospect of leaving the euro and returning to its former currency. • Portugal facing large austerity challenges. • High interest rates & taxes to pay higher cost of borrowing.
- 12. Will UK ever join the Euro? • United Kingdom redesigned most of its coinage in 2008. • Pound has been trading at a competitive level in global currency markets. (2009-10) • No intentions to give up the ability to control interest rates. • About 70% of the British population is against joining Euro. • Keeping in mind the current scenario- UK made a smart decision by NOT being a part of the Euro Zone.