England To Join The Emu Costs And Benefits Analysis

Research on European Economic Integration is one of the most popular topics at present. And now, the European Economic and Monetary Union (EMU) are over four-year old and the European economic integration has entered into the third stage. What the effect of EMU on the 'outside', such as UK, Denmark and Sweden? The debate over the central question of whether or not Britain should relinquish the pound in favor of the euro is presently the focus of many scholars attention, In Britain, more than 60% people are opposed to joining EMU. However, the Blair Government is the strong component of EMU. The British Chancellor of the Exchequer has proposed 'five (economic) test' for whether the UK will suffer the microeconomic and macroeconomic volatility and state that UK will take part in EMU soon. This is not because Great Britain is the traditional Capitalism country which has natural connection with the European Continent, but also because its role and influence power is reduced by France and Germany. As a result, UK will not stay out of EMU too long. So, whether UK should join EMU? What are the costs and benefits of UK's entry into EMU? This is the focus of this paper. Britain is the important trading partners of China, so it is useful to be aware of the economic policies of UK.Starting from the theoretical analysis on OCA theory, the aim of this paper is to analyze the costs and benefits of UK's entry into EMU. The dominant theoretic framework of analyzing this question is the Optimal Currency Areas theory. By reviewing the relevant literature on OCA theory and its analysis on costs and benefits, I would like to construct a theoretical framework to analyze the costs and benefits of a currency area. After the some research on Britain's economic situation, I lead the conclusion that we find that UK's entry into EMU includes both costs and benefits from in respect of economy. As a result, Britain government is hesitant to take part in EMU for the consideration of political, economic and culture causes. However, UK has a natural connection with the European continent. To strength its influence and role in political and economic decision making of EU, British government will absolutely choose to join in EMU in the futureThe paper is organized as follows: first, I will review relevant literature on Optimal Currency Area Theory and its analysis on costs and benefits of currency areas. And second, based on the research question, construct a theoretical framework to analyze the costs and benefits of costs and benefits of currency areas. The benefits are listed as follows: on the microeconomic base, there are some benefits, such as reduction in costs, improvement in efficiency, increase in output and trade, deep integration in financial market and less inflation volatility and so on. And on the macroeconomic base, joining a currency area also has some advantages, including industry specialization, products variation, openness for bilateral trade, and economic sizes, and more faith in government credits. However, on the other hand, costs are inevitable: first, loss of monetary and fiscal policy, which leads to some economic adjustment tools, like interest rate and foreign exchange rate, losing effects. Some adjustment costs happened. Thirdly, I will analyze the economic situation of UK and its costs and benefits of UK's entry into EMU. And then, I will make a simple forecast on the future policy of the British government. What's the cost and benefits of UK's entry into EMU? there are some benefits, such as reduction in trading costs, dramatic increase in trade, less economic volatility, more income and output, lower inflation, more FDI, price transparency ect. However, on the other hand, some costs are enormous: loss of monetary policy, potential costs associated with fiscal harmonization inside the Euro zone, weaknesses in the institutional and policy framework of the Euro zone, loss of benefits and limits on growth rate.Among the Chinese scholars, there is relatively rare discussion on this question, especially the theoretic explanation to this question. So this paper did some contribution to know more about the economic policies of UK government with OCA theory. However, because of the limited time and energy, I use more qualitative study than quantitative study.