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.