Advantages and Disadvantages of Adopting the Euro

Advantages and Disadvantages of Adopting the EuroA Study of the Benefits and be which Might Result for UK-based Firms Should the UK Adopt the EuroName Louise TibagalikaIntroductionThe euro is the wizard funds established in 1999, currently sh ard by 18 countries of the European ex qualifyings unions Member States (Ec.europa.eu, 2014). Due to the number of advantages such as the stimulation of trade and disadvantages such as economical instability, the decision for the UK to soak up the euro is a big economic and political debate at display which volition affect businesses and the public in galore(postnominal) ways. The following identify pull up stakes look at the advantages and disadvantages for businesses and answer the question as to whether the UK organisation should proceed with the decision.ObjectivesAssess the benefits of the UK earning the EUROAssess the drawbacks associated with the UK adopting the EUROHow businesses poop utilise these benefits and carry thro ugh in the international marketLook at the political, economic, social and environmental factors interpret workplace and personal experienceMethodologyIn order to denounce the goals identified above, a variety of different sources fool to be explored. The plaza text International business by Wall, S., Minocha, S. and Rees, B. and Macroeconomics By Edward Gamber and David C cullender are goodly places to start as they curb a good background on international business and the different factors that effect businesses flavor to expand on an international level.To fully assess and answer the make up question the following sources lead be usefulAdopting the Euro in primal Europe, Challenges of the Next Step in European Integration cursory 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 s pecie Area supposition by Mongelli, F. P.These sources prey good background on the problem and besides give different opinions as to the pros and cons associated with adopting the euro. They also provide links to miscellaneous former(a) 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 overmuch talked about issue due to the economic and political implications, there provide be a number of web based sources that entrust be explored such asEc.europa.eu 2014 The euro European military commissionS-cool.co.uk. 2014 A-level Economics The Euro Revision Should the UK give the Single Currency?News.bbc.co.uk. 1997 BBC News Single funds Pros and Cons.Wei, L. 2009 Your portal to the cosmos 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 join the EUROThese amongst other online sources will also give different opinions on the question asked and will be useful as a source before further reading or investigate is carried out. With the various forums online and the above sources, there will be a monumental amount of instructionMain BodyAdvantages of the EuroThe Economic and Monetary Union (EMU) was established to part with the European economy to function well take more than jobs and greater prosperity for Europeans (European Commission Europa, 2011). There are numerous benefits to adopting the euro for the UK and for businesses a desire which include eliminating happens and cutting be.The main benefit for businesses is that due to the single currentness there will be no costs in ex changing currencies with EU countries which will result in the disbelief for businesses world edit outd. This will help to reform economic welfare and also remove the risk of unforeseen transform rate revaluations or de valuations (Historylearningsite.co.uk, 2013 Irons and Colander, 2002). Due to the displace exchange rates, businesses would pick out to take into consideration either export prices being higher or companies being discouraged from exporting indoors a single market. Therefore 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 dependable to medium sized UK businesses as they keep non 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 funds the European Central Bank will focus on economic conditions crossways the board helping to note 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, thi s evoke improve profitability of exports and more businesses will want to invest in UK firms. alike 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 go with Mitsubishi Corporation is keen for the switch and theBy joining the EU, UK businesses will be frank to price transparency 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 make their customers happy with lower prices (Baimbridge and Whyman, 2008 Ec.europa.eu, 2013). For casing 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 access as investors will no longer be limited to a local market and investors can move jacket crown to areas where it will be used mo re in effect (Baimbridge and Whyman, 2008 Ec.europa.eu, 2013).The UK is also known to have a very successful wear out market and within a single currency this would be exceedingly beneficial not only in that the flash rate will go down but also as competitiveness 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 strong, well-nigh 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 o ut of backbreakingies. For example during the economic downturn in 2008, 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 failing 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 training 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 necessity (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 estimated 3,000 rms display case total costs of up to 56.5 million (35.8 million) (Baimbridge and Whyman, 2008).UK Businesses 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 kind to cross border trade and will be reinforced by internet shopping (Baimbridge and Whyman, 2008). Inefficient firms will suffer mostly from this and profit will be reduced due to higher levels of competition.Joining the euro would hateful that the UK would have to adhere to new labour rules which in some cases shape how employees are hired and fired (Baimbridge and Whyman, 2008 Econ.economicshelp.org, 2007)). As the labour market is more plastic in the UK than it is in others in the euro and UK firms have more freedom with employment, joining would be detrimental for the firms as the cost of production would a dd-on and unions would have more power (S-cool.co.uk, 2014 Brugesgroup.com, 2014).Results and ConclusionsBased on the findings above the worldwide 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 pecuniary reservesReducing losses due to different rates of inflation within EMU member countries improving macroeconomic oversight and cooperationImproving macroeconomic stabilisation within EU Member StatesThe costs for UK businesses on the other hand are as followsDeflation and economic instabilitycost of changeLoss of income resulting from issuing currencyIncrease of costs necessary to make shock adjustmentsLower economic growth rates slight flexible labour marketComparing the two lists, it would seem that it wold be best for the UK to adopt euro as businesses would benefit from the lower tran saction 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 at last 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 impact on trade and business (Cenue, M, Drig, 2010 Baimbridge and Whyman , 2008) eventually there are many factors that need to be considered should the 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, widely hyperbolise 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 in stock(predicate) at http//www.brugesgroup.com/mediacentr e/index.live? condition=74 Accessed 10 Feb 2014.Cenue, M, Drig, 2010, Advantages And Disadvantages 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 irregular 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 Comm ission Europa. 2011. How the euro benefit us all. online Available at http//ec.europa.eu/economy_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 Commerce Economic Briefing, study presented at British Chamber of Commerce Economic Briefing, capital of the United Kingdom, 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_curr ency/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/ fiscal 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.