Monday, September 23, 2019

Discuss whether the European Monetary Union would benefit from British Essay

Discuss whether the European Monetary Union would benefit from British membership - Essay Example This would also assist in promoting reforms of the supply-side in the EU which would in turn encourage further exploitation and specialization of comparative advantage In the UK’s several sectors in the economy in the long run. Boost price transparency Any country’s membership to the EMU makes it possible for consumers to compare relative price levels across a number of member states. Britain’s membership would increase price transparency in the EU. This is more so because Britain is a big economy on its own with a wide range of markets. This would in turn encourage cross border trade and competition across a number of different markets. Allocative efficiency would be greatly improved thus improving consumers’ welfare within the EU. This is would be a great benefit to the EMU as it would encourage more and more states to join the Euro Zone. The price transparency theory can be explained; prices of different goods differ in different countries as a result o f different currencies and different Value added taxes. Although it is hard vto eliminate the differences brought about by VAT, the currency born price differences can be completely eliminated by forming a single currency. This increases transparency as there are no currency exchanges in the transactions. Common currency also increased competition kicking out of the markets firms that have inefficient production methods. If Britain joins the EU, currency differences will be a matter of past tense and price transparency will ensue. Increase in foreign investment flows Britain, being a major recipient of foreign direct investment especially in the recent periods would greatly increase the inflow of foreign investments into the Euro Zone. This would greatly facilitate the development of Multi-nationals enterprises within the EMU. Scholars have argued that apart from these foreign investment inflows benefiting the EMU if Britain joined, they would also help the economy of the Great Brit ain through the development of its multinational enterprises. Actually, it has been suggested that if Britain continues to say outside the system, these foreign investment flows may be threatened in the near future. High employment rates and wages for workers in the EU zone. A sustainable convergence between the euro zone countries and the UK would bring about potential employment benefit to all member countries. This would include potentially reduced prices and relatively higher wages. This is simply because UK has a big economy that EU would use to bring these long- term household benefits. Reduced transaction costs; If UK joins the European Monetary Union, there will be a single currency in use between the country and the countries already in the Euro zone; this means that there will be no conversion costs emanating from currency conversions. This will reduce the total transaction costs in trade. This is especially significant in Britain’s case because majority of transact ions in the EU zone are done with Britain. Therefore, by Britain joining the EU, these transaction costs will be eliminated. This is a benefit to both Britain and the European monetary union. Rival to the ‘Big Two’ The Japanese yen and the American dollar are the two strong currencies in the world today. These two countries have millions of inhabitants and strong economies. A new currency in Europe through

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