Euro Adoption By The Uk

By Author: Anthony W Bills
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Euro Adoption by the UK
Abstract
Adoption of Euro by the UK has been an issue that has attracted many discussions over time thus forming a complex debate. UK decline have made the country to be the center of interest by most economists and researchers trying to establish the basic reasons why the UK has not joined the Euro. Though it has been discussed through different forums, ignoring the benefits the Euro could bring to the UK and concentrated on the negatives that are brought about by the joining Euro.
Over several years, the Euro has been an issue of concern as politicians campaign with Euro being one of the subjects. Though former attempts have not yielded any benefits, the UK government is still silent about the issue, though considering the former attempt to have a single currency in the country did not succeed and brought about losses to many players.
As the Euro continues to gain grounds and value, the Starling Pound has remained the strongest currency of which the government has been unable to limit its lower limit. This has contributed to the UK withdrawal of the joining the Euro world ...
... and remain an independent monetary country.
The UK did not want any other country to control its monetary policies and this could have contributed greatly to the decline of joining the Euro. Euro is controlled by European Central Bank (ECB) which gives no chance to any country to have exceptions. All members are equal and they follow the policies set forth by the Euro and ECB. UK has its policies and controls its policies including the rates and profits brought forth by the Pound.
The dissertation will evaluate the issue on whether the UK should join euro or not. The benefits that could be brought about by the Euro to UK if it decides to join and also benefits UK would get if it declines to join the Euro. On the other hand, the dissertation will analyse the risks that could be faced by UK if it considers joining the Euro.
The dissertation will also look at other countries that have joined Euro and what benefits they are gaining as well as the limitations they are facing as far as joining Euro is concerned. This will form a base on whether the UK should join Euro or not.
Acknowledgement
I would like to take this opportunity to firstly thank my supervisor Martin and Sharon for supporting me all throughout the whole year, the topic area that was chosen in this dissertation would have never been properly done without their help and assistants given.

I would like to thank Peter Short, for his advice which was very helpful in terms of gathering and accessing the information which I required. The dissertation would not have been achievable without the advice which Peter gave towards my primary data and Methodology.

I would like to thank my mother and my aunties who helped me find the primary research results on if UK should adopt the Euro or not appropriately
Introduction
Euro, denoted by a sign (€), is the official currency of the Eurozone. Eurozone comprise of 17 of the 27 member states of the European Union (EU). Euro is also the currency that is being used by the EU institutions. Euro is used daily by approximate 327 million Europeans and other 175 million World wide. 150 million users of Euro are in Africa.
Euro is the second world largest reserve current and also the most traded currency from the US dollar ($). By June of 2010, there was already €800 billion in circulation. Compared to other global currencies, Euro has the largest combination of coins and banknotes in circulation globally and the only currency that have surpassed the US$. According to the International Monetary Fund (IMF) estimates, in 2008 GDP and the purchasing power parity, Eurozone is the second largest economy in the world.
The name Euro was officially adopted in 1995 December 16th. It was introduced to the world financial markets and accounting on 1st January 1999 and replaced the former European Currency Unit (ECU) at 1:1 ratio. The Euro coins and notes entered in to circulation in 1st of January year 2002.
Although the Euro started to circulate formally in January 1, 2002, it is quite evident that creating a union among people of Europe had been debated many years ago as it is stated in the Treaty of Rome (1957). In 1979 the Euro saw the introduction of European monetary system (EMS which led to pegging of exchange rates amongst the participating countries. (Saha and Von Weizsäcker, 2009).
This move aided a lot as far as stabilising the economy is concerned. Economic and Monetary Union (EMU) was later formed in 1992. Its formation led to setting the basics for creating a single currency. Euro officially came in on January, 1, 1999 when the participating countries launched exchange rates between the Euro and their own currencies creating a monetary union. (Andrew, 2007)
During the alteration which took 3 years, Euro was used as electronic money. Later, coins and notes came up to introducing the currency use. As of now, the twelve Euro area member states use a single currency, share a common interest rate as well as a common central bank (ESCB). This is seen as one of the largest monetary replacement to be witnessed in the world. (Andrew, 2007)
The Euro is currently administered by (ESCB). ESCB is comprised of Euro zone central banks and European Central Bank (ECB). The headquarters of (ECB) is in Frankfurt, Germany. The authority of setting monetary policies lies on the ECB with the other members of European System of Central Bank (ESCB) participating through, printing and distribution of the notes and coins (Saha and Von Weizsäcker, 2009).
Countries in the European Union that have adopted the use of Euro are , Germany, Belgium, Greece, Ireland, Spain, France Italy, Netherlands, Luxembourg, Finland, Portugal and Austria. On the other hand, there are some European countries which have not adopted the use of Euro. These include UK, Denmark and Sweden. (Layard, 2005)
As a result of creating such a market, European countries as well as government who once depended on local investors and banks for their financing have got wide financial markets.
Euro has an integrated monetary policy but still there remains to be clear terms of customs, language and national politics. The applications of monetary policies have not been effective in tackling with various economic indicators of the country. For instance, if a region within EU is facing high unemployment rates while others at the same time are booming, ECB is not likely to lower interest rates to help the situation. (Congdon, 2006).
Some economists and observers such as Martin Fieldstein in his article have expressed their concerns that the tensions existing in EU countries could actually result into breakdown of the Euro or even worse, result into war. This opinion does not appear to be on the horizon but it is rather a clear signal that there are unfinished issues about the European project. (Solow, 2008)
Joining the Euro is only an option for the UK; to evaluate the dissertation further will be discussed in the report.
Research Aims
The aim’s of the research is to:
• To determine whether the UK should adopt Euro
• To determine whether the UK people support the adoption of the Euro
• To determine what are the government’s view of adopting the Euro

Research Question and Objectives
The objective of this research is to come up with a conclusion on whether the UK should adopt the Euro. The dissertation seeks to answer the following questions:

• What are the views on UK adopting the Euro?
• What are the concerns UK being in the Euro?
• When is the right time of going into the Euro?
• Before the Euro what was the ERM all about?
Chapter 2 Literature Review
2.1 Introduction
Upon the formation of the Euro and the European Monetary Union, quite few countries have joined the Euro, the choice UK faces is whether to join or not. Public questionnaires, business interviews and professional experts will be gathered on this issue, as they are the main political parties. It is clear that the decision is a political one and political arguments are critically important in this debate.

Successful businesses and financial advisors of different financial institutions will be surveyed to see if they would prefer the UK to join the Euro and will that put the businesses at an advantage. Although different views may surface from the consumers, there remains a strong indication that the economy should not join the Euro.

To find this information this research arranges to speak to certain bank managers in Blackburn to see what the positives/negatives could be if the economy joined the Euro. It has been evidenced that the country is not ready to join Euro and Euro zone.

An Analysis on Whether UK Should Join the Euro, this report brings the different opinions collected from various sources; they are grouped into the following four categories: the impact of UK membership on UK political status, economy, businesses and people.
The Euro is a currency which is used by 12 countries of the European Union and other regions such as France, Italy and Germany. The main aim of creating such a currency was to create a single market which could benefit in Europe. This could only be achieved through, by making a free trade among members of the Euro zone. However, over the time, Euro has been used as a guide for achieving political integration.
2.2 Background of Euro
The Euro was launched in 1999, it traded at $ 1.1747 on currency markets rising as high as $1.1906 before falling back slightly to close at $1.1801 and against the sterling, the Euro rose to 71.89p having earlier hit a record overnight against the Japanese yen of 138.1. (Niober 2009). This showed that since the Euro was launched it was trading pretty high but by the year 2000, the US dollar and the Euro were trading close to a 1.1 ratio.
The performance of the Euro performed poorly with respect to the US dollar in its first few years, according to the BBC uncertainty about the policies of the new European central bank and public disagreements among the members of the Euro zone contributed to the weakening of the Euro (Bill 2009).
According to the telegraph the Euro continued to decline with respect to the US dollar reaching a record low of $0.8225 in October 2000 which was about 30 percent below its launch value. The Euro continued to trade at less than 1.1 ratio to the dollar through the end of 2001.
The global recession that began in late 2000s led to decline in the Euros value with respect to the US dollar. According to the Telegraph weakness in the world financial markets and the falling of Companies such as Lehman Brothers and AIG caused the investors flock to safe haven status of the Dollar and the Yen. The Euro fell to low of $1.2328 on October 2008. The telegraph states that the Euro was worth about $1.30 at the end of November 2010
The decline in the dollar marked that the currency has lost value against the Euro and traders said they were braced for more to come because a senior currency strategist at Bank of New York said traders won't stop until they see the dollar at $1.20 per Euro. In the past 12 months the US currency has fallen by 21 per cent against the Euro as traders become more and more convinced that the Bush administration has abandoned the "strong dollar" policy because It had fallen 5.2 per cent so far to Sterling,
The decline in the value of the currency has attracted a lot of finger pointing, head scratching and possibly hair pulling among many European leaders. (Solow, 2008)
Some economist explain the continuous weakening of the Euro as being as a result of the fact that there has been an increased flow of investment capital from Europe to US than it is the other way round. Further, a lot of explanations are offered for this scenario. First is due to the fact that the economy of US has been growing at a faster rate as compared to that of Europe for the past decade.
This trend apparently makes investment in US to be more attractive. Other than that, the switch to Euro had an impact on manner in which institutional investors such as insurers divided their portfolio between international and domestic investment. This fact has been seen by many economists as giving temporary boost to the dollar. (Solow, 2008).
The biggest decision is, to see whether UK should join the Euro or not, according to the views of the government such as the Labour party it is very important to get more information about the pros and cons of the move before deciding on the final take on the issue because Labour's position on the Euro is in fundamental terms straightforward as the party genuinely intends to join the single currency when the time and conditions are right. Although the Labour government might appear to be in favour of the principle, it is yet undecided on when to recommend the country’s entry into Euro zone. (Obstfeld and Peri, 2005)

Although the 12 European countries had common currencies before the Euro which were Schilling (Austria), Lira (Italy), Belg. Franc (Belgium), pounds (Cyprus), Gulden florin (Netherlands), Escudo (Portugal), Deutschemark (Germany), Drachma ( Greece), Franc (France). Markka (Finland), Kroon (Estonia), Peseta (Spain), Punt (Ireland).

It is quite evident that most of them were actually compulsory through take-over because most countries join the Euro to work a long way in increasing people’s incomes and improving the living standards of the citizens of UK. According to Paul (2008), UK decided to stay away from the common market in 1956.

In the year that followed, the living standards in UK were way below of France and Germany since those countries were able to benefit from extra efficiencies resulting from the advantage of having access to a very large market. (Rose, 2006).

Therefore, the Euro was the first serving currency in Europe that the member countries adopted voluntarily, after to gather the benefits of adopting it. Some of the countries in Euro zone adopted the use of Euro to fit in the dominant European economy and some non European members such as Margaret Thatcher up to now question the cause of some countries joining the Euro zone
As to meet the economic policies requirements for the Euro admission, governments in Spain, Italy and other European Union countries stopped spending more than they actually took. The end result of such move was inflation and interest rates were brought down. Europe has also seen the creation of a Euro dominated market whose rivals are U.S and the Japanese Yen (Layard, 2005)
Some countries have over the time been able to match up their productivity per hour worked with that of United States. A result of high levels of economical government for countries such as France and Germany can afford better railways, hospitals and schools which remain to be just but a dream to UK. (Fitoussi and Le Cacheux, 2009)

In support of the move, various economic analysts have analysed both sides of the coin that is pros and cons of adopting the Euro and left the key concerns with an option of choosing the direction to follow. (Nieboer, 2008)

As a discussion, an analysis of why UK shouldn’t adopt the Euro will be discussed and then a discussion of the reasons for joining the Euro will be discussed and explain other arguments and issues which would be related to the Euro.
2.3 Is Euro the first single currency to be used in EU?
Euro is not the first attempt in achieving the European monetary Union. This is because; several attempts were done before they failed in the middle. Example;
In 1863, there was established a Latin Monetary Union which involved Belgium, France, Switzerland and Italy. Four years later, Bulgaria and Greece joined. The system suffered a great setback in 1867 when the international conference came down in favour of the gold standards in an effort of stabilising the international currencies. The Latin Monetary Union, however, continued until 1927.
In 1872, Scandinavian Monetary Union was formed by Denmark, Norway and Sweden. These countries utilised a single currency called Scandinavian Krone. In 1905, Sweden abandoned the currency when it separated from Norway and the whole union came to an end in 1914.
In 1921, the Anglo Monetary Union was formed and came to an end when the Ireland joined the European Exchange Rate Mechanism in 1979.

When did Britain join the Exchange rate?
The European Exchange Rate Mechanism, (ERM) was a system that was introduced by the European Community in 1979 and was a part of the European Monetary System (EMS). It was established to reduce the exchange rates viability as well as achieving the monetary stability in the EU which was aimed at preparing for an Economic and Monetary Union and also for the introduction of a single currency, the EURO. When the Euro was introduced, the policy was set up to link the euro with other currencies outside the Euro zone. The aim was stabilising the currency and also gain the potential of the Euro members.

Britain entered the Exchange Rate Mechanism in the 1990, to exit from it in 1992 because the government wanted to move the pound to the Dutsch mark which is the currency of Germany, the rate UK joined was at DM2.95. This movement was taken so that the UK can to get a German-style economy, with stability and low inflation. The move did give UK low inflation, but it did not provide a stable economy because the UK entered the ERM (Exchange Rate Mechanism) late.

The Bank of England had to get involved regularly to keep the pound within its permitted range against the deutschmark within the Exchange range Mechanism, because at times, in terms of the foreign currency involvement was required, because the pound was valued too high against the Deutschmark which was costly as interest rates were too high for the UK to compete against Germany (McCallum 2005).
The graph shows the Unemployment rate when Britain joined the ERM

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When Britain joined the ERM from 1990 to 1992, over the two years in the exchange rate mechanism it caused Britain high unemployment levels to rise because from the graph above the unemployment levels was approximately two million before they joined the ERM but as soon as UK joined the ERM over the period of 2 years the unemployment rose to approximately three million. This happened because Britain faced economic melt-down because UK over valued the pound against the Dutsch currency and the sterling came under continued selling pressure, as the government could no longer justify very high interest rates to maintain the pound's value because Uk was already suffering from a recession.
In addition, at the time, interest rates in Europe and even in Germany, which was dealing with the causes were high and that meant that UK interest rates had to be high because otherwise a difference between the interest rates in Germany and the rest of Europe and in the UK would have led to more pressure in terms of the value of the pound.
There would have been downward pressure on the pound if the UK had cut interest rates at the time when European interest rates were high (Applied Financial Economics, 2004).

This caused a particular problem for the UK economy because, at the start of the 1990s, there was a recession in the UK. These were very bad times in the housing market and the economy was crying out for low interest rates.

There was a clear conflict between the membership of the ERM and the requirements for the economy as a whole. The economy as a whole in the UK wanted lower interest rates but the Government and the Bank of England couldn’t deliver them because, the interest rates had to be kept high to maintain the value of the pound against the deutschmark (HM Treasury, 2007).

The German interest rates, combined with the fact Germany needed tighter monetary policy than Britain at the time, meant the ERM prolonged a painful recession in the UK
The monetary passage was producing low growth and unemployment and deficits across the Euro area as they were arising. Germany, France, Italy and Portugal have all admitted that they couldn’t comply with the strict limits on budget deficits as the money falls insist by the Growth and Stability agreement which was supposed to reflect the monetary control of a single interest rate with control on public finances.
The agreement was nearly to collapse in September '02, because the European Commission was forced to relax the timetable for reaching budget balance by two years. Most economists still believe that the biggest Euro zone economies will fail to meet the new, credibility of the Euro in the financial markets as it is already low and has been undermined even further (Mccallum 2010).
Joining the Euro would wreck the Government's core plan of investment in public services; because Mr David Cameron indicated that nothing will be done in relation with fiscal plans. Outside the Euro, UK would do much better; if UK were to join the Euro Mr David Cameron would be forced to comply with the Commission's demands. (HM Treasury)
When Britain left the Exchange Rate Mechanism in 1992 things turned out better than might have been expected because the pound fell, but then rose again. Inflation has been rather gentle since UK left. The ERM may have helped set a low-inflation foundation for the subsequent decade; however the ERM did prolong the British slump, by preventing UK rates from being cut to the levels justified by the UK economy (Treneman, 2007).
What influence has Black Wednesday had?
Black Wednesday, according to the politics and economics refers to the events that happened on September 16th 1992. In this day, the British conservative government was forced to withdraw the Sterling Pound from the ERM after the government was unable to keep the pound above the lower agreed limit. The re-known and a most high profile currency market investor, George Soros, made over US$ 1 billion profit within a short selling of Sterling pound.
In 1997, it was estimated that Black Wednesday costed £3.4 billion according to the UK treasury. The actual cost was revealed in 2005 and was £3.3 billion under the freedom of information Act (Fol).
The influence black Wednesday had generally made the UK a bit more sceptical about causing itself to external currency systems. Pro-and anti-Euro campaigners agree the ERM was a mistake, they do not agree on which route we should now follow, with those opposed in the "no" camp using it as a reason why the UK should not join the Euro (Trust, 2001).

By looking at the actual situation of the UK, one can clearly see that in 1990 to 1992 over the past years the pound was forced out of the Exchange Rate Mechanism, which caused system for tying its value to that of other European currencies. Black Wednesday, as 16 September 1992 came to be known, provided one of the most memorable failures of post-war British economic policy (Koen, 2002).

The British economy is still in a recession, if UK were to join the Euro right now it may again lead to an unstable economy as to what happened in the 1990.

Average number of unemployment rates since the Euro was launched
Since the Euro was launched in 1999 there are many reasons why UK should not adopt the Euro because by looking at the actual graph below it shows the unemployment rates when the Euro was launched, there are many disadvantages for Italy, France, Germany and the Euro zone average, are much clear that the unemployment rates are pretty high as these are the countries which have joined the Euro zone. Compared to Britain as they stayed away from the Euro it is clear that if Britain was to join the Euro they may again face high unemployment rate. Since Britain never joined the Euro in 1999 the unemployment rates for UK are much lower than the countries which have joined the Euro. Clearly there is an indication from the graph, Britain is doing much better than the other countries and also shows if UK were to join the Euro, this may increase high levels of unemployment to rise

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From the research found Britain's recent period of economic success and stability began in 1992, when the UK regained its ability to run an independent monetary policy by leaving the European Exchange Rate Mechanism.
In the past when Britain joined the exchange rate between 1990 and 1992 The two-year period when Britain locked (joined) its exchange rate to continental European currencies was a disaster because 1.75 million households were left in negative equity, 100,000 businesses went bankrupt and unemployment doubled, all because Britain was unable to pursue an exchange rate and interest rates suited to Britain's needs. (Paul 2008)
The longest period of uninterrupted growth since the 1992 when Britain pulled out of the exchange rate mechanism and they didn’t join the Euro in 1999 allowed Britain to build up a healthy enough budget position to conduct a unique programme of investment in public services
UK government views about joining the Euro Zone

The UK government proposed five economic tests and the results that will be achieved will determine whether the UK should join the Euro or not. They include;

a) Flexibility- Ensure that the economics of the country has the ability to recover after the shock and also won’t last for long.
b) Financial services- this will test the stability of the Economy before and after joining the Euro zone.
c) Convergence- This is to ensure that the interest of all members is united for a long time and committed to the European Monetary Union
d) Investment- To ensure that there is no problem to the investors who are willing to invest in the Euro zone for a long time
e) Growth, employment and stability- The government decided not to join the Euro until all the tests are passed and ensure that joining the Euro will be beneficial to its citizens.

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The graph shows the votes of how many people are against the Euro even if the five economic tests were considered and it also shows if there was a referendum by the government how people would vote.
The truth is most of the people are against the Euro even if the five economic test were passed. The economic stability is more important for planning and for profits because If Britain enjoys sustained low-inflation growth, since 1992 when the UK left the ERM, the economy will be better without being in the Euro.
Also at the moment the problems with the design of EMU is deeply negative because there is inflexibility of interest rates as they are pegged. Also the loss of independence monetary policy is no longer tailored according to local needs, such as interest rates and risk of economical shocks.
Britain's economical country is successful without being in the Euro because if UK were to join the euro, European politics are weak and the economic failure will lead to political weakness, as the Euro zone is now demonstrating, as it is not performing well.
At the moment UK should not throw away its recent record of economic success because the EMU is not good for the UK as it is only good for certain countries.
Euro zone and Britain
Britain, with an independent monetary policy and the freedom to pursue its own public spending and taxation priorities is successful, without being in the Euro because the Euro zone is with high unemployment and rising deficits. The Chancellor's demand he states that Britain should only join a "successful" single currency, if the economic benefits are clear, at the moment there is no case for joining the Euro as things now stand.
Britain is doing better outside the Euro and that continental partners are faring badly inside, and that this is likely to continue (lord Mandelson 2008). The risks of signing up for a rigid single currency system are enormous.
The Euro and the tourism industry
At the moment the Euro and the single currency is an additional disadvantage for people selling holidays to Britain in the Euro zone because the tourism industry can plan ahead with no currency volatility but there is no evidence that the exchange rate has stability to trade and also there is no reason to think it will be positive for tourism. In all sectors there are suggestions of market activity which are more important such as price being a prime one.
British manufacturers have complained that the 'high pound' is measured more accurately than the weak Euro because the Euro has devalued by 25% after its launch in 1999 against the dollar) and has made their exports to the Euro zone too expensive.
Some businesses in the UK tourist industry have complained about the high pound putting off visitors, as, the exchange rate of the pound is high compared to other currencies which is a different issue to joining the Euro. If the Government wanted to, it could devalue the pound. But the Government think this would be a mistake as it would only lead to higher inflation, so prices would be the same in the end, but the economy would be less stable.
Secondly, the pound has not been particularly strong and the Euro has been weak. Over the last few years, the pound has actually been near 20-year lows against the dollar, making it cheaper for visitors from the US, which is the UK's number one source of overseas visitors.
Also the UK parliament, blame the Euro for problems, because UK refused to say what rate they would join at. If you look at the Euro countries they would be likely to allow the UK to devalue ahead of joining them because joining the Euro would lock in the current exchange rate with the Euro permanently and this move may lead to a disadvantage as Britain have set the exchange rate to a certain measurement.
The views against the Pound and the Euro

A senior MP tried to put the case of joining the Euro in the House commons in 2003, the MP argued that using a single currency would reduce the way of doing business and lower transaction rates to the consumers and also will diminish the volatility of the exchange rates. It was argued that the adoption of Euro will also on the other hand increase the cross border trade. According to many business owners, they complain about their frustrations on why the Britain has not joined Euro observing them from leaping the benefits that are brought about by the Euro (Micco, 2009).

The MP who was supporting the adoption of Euro became the prime minister, and years later, the debate seems to be forgotten and no one is talking about it. The urgency that was being claimed about has now taken years to implement and still has not been urgent and no one is talking about it during the campaigns.

For developing business, the issue of the Euro adoption is frustrating because according to Hugh Facey, an executive chairman of the Queen’s Award-winning manufacturer Gripple said that he finds it unbelievable that Britain is not in the Euro zone and emphasised that this is an inappropriate action and stand. According to Facey, he said that by the UK joining Euro, there are reasons that the UK will eliminate risks of dealings with the Euro zone and also increase trade with the nearest neighbours. UK, having been an exporter and almost of its dealings are in Euros, will have more benefits and also have stability in its trade with other countries (Micco, 2009).
Why UK did not join the Euro
When the Euro was established, there were enough grounds for the UK not to join the Euro through the establishment of the five tests by Gordon Brown; it was aimed to test how the country will be, if it joins the Euro. UK has retained its Pound even though the Euro is increasing popularity. There were already 15 members of the Euro and nine territories that are using the Euro as their sole currency and there are other countries like Poland, Czech Republic and Baltic which are obliged to join the Euro in future.

If today the UK passes the tests, there are still low chances of the Country to join Euro in future even though the Euro is becoming strong and famous currency. The time to join the Euro has passed, and when it would have been easier, Tony Blair did not utilise the opportunity. There are more disadvantages and they continue to increase day by day, thus minimising the chances of Joining the Euro.
Benefits of joining the Euro

There are only two options for the UK on joining the Euro, either to join the Euro zone or continue with the pound. (HM Treasury) If UK does join the Euro they should look at the trading in Europe and also look at how much trade UK do with the Euro zone. Taking into the current account as a whole the only fair measure, given the importance of services such as tourism in the British economy, as opposed to physical manufacturing, Britain only does 43% of its trade with the Euro zone.

This is significant but for those Euro zone countries which do the bulk of their trade within the single currency area, the single currency is clearly a benefit and perhaps makes the difficulties of the one size because all interest rate is a risk worth taking because Britain is more responsive to currency volatility against the dollar as 27% of our goods are invoiced in dollars against 19% invoiced in the Euro.

By joining the Euro, UK would be trading currency stability for less than half of the trade with currency instability against the dollar which affects many more of the exporters.
Even if Britain's trade were 100% with the Euro zone, the exchange rate stability is a major factor because reports, has shown that currency stability does not lead to increased trade. The figures for trade volumes show that British exports to the Euro zone have grown by 23.5% in the three years since the Euro was launched in 1999, while the average growth in exports of Euro zone economies to other members of the single currency area was 19%. So Britain has done better than the Euro zone average regardless of having a different currency, and despite the fact that sterling has been so high against the Euro on foreign exchange markets
For the idea of single market to be fully implemented, there is a need for a single currency to be implemented. At the moment, any British company which is making exports to the continent may not have an idea as to, what the exchange rate of sterling pound/Euro would be in the future. This therefore makes it hard for the company to clearly tell what losses or profits it might enjoy by expanding its trading activities within Europe. The exchange rate risk is seen by many economic analysts as being a major lack of encouragement towards trade and investment within the continent. (Laurent and Le Cacheux, 2006)

Continuing fluctuations seems to be a hard take in some instances because exchange rates tend to increase therefore making capital easily transferable between the currencies. Britain has particularly witnessed this in terms of the strength of pound between 1998 and 2002 (Laurent and Le Cacheux, 2006).

This incident was a very a big discouragement for import and exporting companies because a separate currency is likely to become an increasing disadvantage to any medium sized trade such as UK which is very dependent on international trade (European Commission, 2002).

The solution for this will only lie within the idea of Britain to join the Euro so as to protect itself against numerous dangers brought about by damaging fluctuations (Rose, 2007).

The move of Britain joining the Euro does not necessarily mean bringing together of taxes and in consequence, this move may not necessarily increase European Union powers of passing rules affecting Britain (Le Cacheux, 2007).

However, Britain will be in better position to influence the manner in which those powers are used through its representatives at regular meetings. Through joining the Euro and from acquiring full membership, Britain would increase its overall influence outside Europe by a very big margin (Dornbusch et al, 2002).

However for Britain, the Euro poses both opportunities and threats for the overall comfort of the country. It is important to critically look at the question of tourism entering into the context of “real world” where it will live next door to an expanding and large Euro-zone bloc.
Over the years, a lot of debate has been directed towards the analysis whether UK should join or not (Mercado et al, 2001). The point here is that Euro exists and Britain has a choice to make between living inside or outside the Euro-zone.

While the two options may carry out considerable amount of risk, the most risky thing would be to choose to stay out until the time when arguments for joining go beyond dispute
(Mercado et al 2001). The reason is the Pound will damage the UK exports and make UK less attractive to investors; because, it will be harder and expensive to find and to work with new suppliers outside home market.

As pointed out earlier, joining the Euro would make Britain increase its level of productivity and better living standards of its people. On the other hand, by trading outside the Euro-zone, Britain will be attracting dangers of falling way below the core of Europe (George, 2001).

The arguments for Britain’s move towards Euro-zone are developed in a step by step manner; firstly there is the argument that one market requires one currency, this argument for joining Euro with that of joining the European single market. The benefits behind this argument would be an increased market size for the member countries (Pesaran, 2007).

These benefits would come in two ways; first, it becomes very easy for producers to reach a large number of customers and as a result be better placed to carry out large scale operations.

It also enables producers to increase their levels of efficiency in production because the economies of scale is very clear in US economy and is now coming to Euro countries now. The increasing wave of restructurings and mergers currently happening across Europe can be recognised to increase economies of scale resulting from the single market and currency (Tempest, 2003).

Other than that, a large market facilitates buying from a wide range of suppliers because it becomes possible to source from suppliers who produce more cheaply as compared to domestic suppliers.

This wide choice offered by the market is very good for both consumers and businesses which are searching for cheaper in-between products as well as good positions for outsourcing. These are mechanisms that have enabled the US to become rich. They are the same reasons as to why Britain took the lead in pressing for introduction of a single market in Europe (Baimbridge and Whyman, 2008).

From the experience of single market since 1992, it is worth to note that formal free trade is by itself not enough measure to truly create a single market. It is quite obvious that even though the idea of single market, prices between countries still vary a great deal with a great variance being witnessed in prices of individual goods in different supermarkets and other retail outlets. Such scale of price distribution apparently does not exist in US the reason behind it being simply the existence of a common currency in US (Oates, 2009).

Multi-country evidence is still good evidence as to why it would wise for UK to adopt the Euro because before the currency union experience of Europe, it has been quite clear that currency union have had major effects on trade.

This fact has been supported by about 19 separate studies which have shared a common perception between the adoption of a common currency and trade (Pesaran, 2007). One of such studies pointed out that Euro will in the long run boost trade amongst Euro countries by about 50%. This would actually be a very big impact on the overall economic growth and development of the region.

By looking at what has happened to Europe since the beginning of the Euro, it becomes very easy to note the impact of the move on trade and general economic performance of various Euro- Zone countries. Since 1998, trade between Euro countries has raised by about 20% relative to gross domestic product (GDP) (Laurent and Le Cacheux, 2004).

This however has not been achieved at the expense of trade between Euro countries and other parts of the world as trade with European Union countries has over this period registered a fall relative to gross domestic product. This shows how much Britain is losing out on exploring trade in its full capacity. This matters la lot to Britain because greater trade or otherwise impacts directly on the level of productivity (Pesaran, 2007).

The table below shows how GDP which is a function of productivity has turned out to be since the introduction of Euro for various countries. Keen interest in this table would be to show the GDP position of Britain and what her move to stay away from Euro has impacted on the GDP of the country. To clearly relate the table to the subject of the study will analyse the section of change for the three countries to show if the respective economies are performing well or not.
2.13 Table to show the changes of GDP over the years

Germany France UK
1998 (%) 28 27 23
2001 32 32 22
Change +4 +5 -1

From the above table, it is quite evident that single currency has a great impact on trade and productivity as the figures for Germany and France are a clear reflection of extra trade taking place relying from removal of exchange risk. The figures of UK on the other hand reflect the opposite because there is a reduction of trade within the country as a result of increase in exchange rate risk. Since the exchange rate risk in Britain has increased over the time, it becomes very hard for the country to develop trading links with other countries within Europe.

Other than increase in trade, the growth in GDP witnessed in Euro-zone countries can be attributed to price transparency because according to Olson (2005) major European multinationals have been charging very high prices for their commodities in order to maximise their profit margins. With the adoption of a single currency, such companies have realised they are more compelled towards adopting a single pricing strategy for the whole of Euro-zone (Tempest, 2008).

If Britain stays away from Euro, then the country will lose out on the main advantages as described earlier as the pound will continue to fluctuate against the Euro.

For businesses and economy at large, this is seen as a very big disadvantage because, if a firm produces machine in Britain before selling them to Germany, then it means that it pays wages in form of pounds.

Therefore in a world where there exist separate currencies, profitability normally fluctuates with the exchange rate. In this case, a separate currency attracts business risks for a company dealing with exports or competing with imports. Fluctuating currencies therefore discourages trade.

According to (Martin 2009) the risk factor is clearly illustrated by looking at the problems facing the British manufacturing sector. According to Martin, the past 4 years have witnessed a very strong pound but that does not rule out the existence of risk.

This risk leads to diversion of management attention away from addressing fundamentals of improved quality, lower costs and higher productivity towards addressing issues to do with exchange rate (Zumer, 2008).

From the analysis of both options my point of view is to evaluate each option on different chain of command attributes. In both cases, at the top of the chain of command, there is the performance. The issue on the Euro should have an overall impact both options on the country.

Advantages of UK joining Euro

1. If the UK joins the Euro it will eliminate the losses of exchange rates. On the other hand, it will be hard for the pound to compete with a single currency and will be hard to recover if it loses value towards other currencies.
2. Through joining the Euro, the UK will be able to increase the inward investment as it’s a very essential part of every country’s economy. Due to many investors expressing their will for the UK to join the Euro, if the UK does not join the Euro will lose more investors.
3. When UK uses a similar currency with its neighbours and other countries that they closely relate, it would be easier to have a reserve in the Euro than having it as pounds.
4. If the UK participates in the Euro, it would be easier to make a strong anti inflation framework.
5. When many countries join the Euro, it will be a great challenge for the Dollar and also it will increase the value of Euro
Disadvantages of UK to joining Euro
1. If the UK joins the Euro, it would be hard and complicated to detect fraud and forgeries because the Euro comes in a variety of notes compared to pounds
2. The adoption of the Euro on the other hand will be expensive because the government will require implementing new machines in IT section and also changing the coin machines.
3. If the UK joins the Euro, it would be hard for the country to get out of recession. This is because it would be hard to cut the interests rates if the country will in anyway suffer recession. In 1992, the UK was in recession and because they were in the ERM, they tried to maintain the high value of the pound and the interest rate was too high (about 15%) and these interest rates exacerbated the UK’s recession.
4. The sensitivity of the interest rates- The UK housing market holds a substantial percentage of the UK economy and its interest rates are relatively sensitive and can change anytime. Compared to other European countries, most of the UK citizens owns their houses and have mortgage value of high percentage of their income. In this regard, a 0.25% change in the interest can have a significant impact and can affect the disposable income. If the UK joins the Euro, it would increase the interest value and this will contribute to the boom of the housing market which on the other hand will contribute the inflation.
5. If the UK joins the Euro, it will lose its independence monetary policy. When the UK joins the Euro, bank of England will no-longer set the interest rates because they will be set by the European Central Bank. The European Central Bank will concentrate on issues facing the Euro and not what is facing the UK in specific, thus, if the UK joins the Euro, its interest rate will fall from 5.25% to the rates of the ECB of 2.25%. The fall in the interest rates can cause the future inflation pressures.
6. When Britain joins the Euro, they will have a monetary policy loss and this will on the other hand bring the shift of independence from the British Central bank to the European central Bank in Brussels.
7. There is uncertainty about which country among the members will dominate the procedures of the Central Bank and how can one country be rescued if in case it falls in inflation.
Summary

From the secondary research it is possible to see that the Euro is of huge importance both globally and to the UK. The Euro, which is quickly becoming a global phenomenon, has opened up new market places to organisations and has the ability to get rid of the need for the pound. The aim of this research is to understand the current and future impact of the Euro. It is possible to see from the secondary research that some people do still value the pound as a resource. In order to fully understand this requirement and current need for the Euro it will be necessary to conduct my own Primary Research in the subject area.

Methodology

In order to test the hypothesis of the study, it is necessary to conduct primary research to give a guideline on whether to approve or disapprove the secondary research that has been conducted in the area. The research can be said to be a controlled, experiential and critical investigation of the theoretical proposition about the apparent relationships among the phenomenon. The research who carries out a research to test its hypothesis or theory is influences by the experience he posses (Hermes, 2002).

The experience of the research could be secondary through the experience the person has acquired either through the interaction with other people with the knowledge regarding the topic or through accessing information from other people who ever conducted this kind of research previously.

It’s clear that, the knowledge and the experience that I get from other sources could bias the research and I must be as subjective as possible to ensure the previous experience does not influence the research in anyway (Farina and Tamborini, 2008).

The means by which I may set out to achieve the goals may depend on the three categories, Reasoning, Experience and Research. The role of the research undertaken is to address the issue on whether the UK should adopt the Euro. In order to understand the theory of this research in this regard, I will look to both positive and negative attributes of the research topic (Bush, 2002).

In order to understand how the research process was undertaken, I am going to use the Research Onion. Having defined the research question (theory) and the research design (hypothesis) for the study, the next step is to discuss the research in a detailed manner. The research philosophy, the research strategies and the approaches used.

Drawing the conclusion from the past researches, many questionnaires end up being not filled out due to negligence and other inconveniencing factors. To cover up for such occurrences, there will be a very large number of questionnaires distributed to increase the chances of getting back a good number of filled in questionnaires. This will aid in boosting the accuracy of the final analysis of the data. Other than that, the questions in the questionnaires will be as simple as possible. This will eliminate occurrences of vagueness which can affect the information filled in the questionnaires.

 
Onion Research

Saunders et al, Research Methods for Business Students, Prentice-Hall (2003

Qualitative method

The steps that are used by the qualitative research are the same as those that are used by the positivists’ research. The first step is to identify the research topic and then refine and clarify. In the interpretive research, the exploration and purpose of the research is designed to discover what can be learned from the research topic. The interpretive view of the world as social background can find many different realities that are organised and understood as a multiple realities (Cousin, 2005).

The qualitative research strategy is characterised by a lower number of audiences and sample number as compared to quantitative research the sample that is selected will present the natural population. The best way to use the qualitative research is through having a controlled sample to avoid the change in patterns and also to avoid the change in the accidental sampling with changing patterns. The random and uncontrolled sampling is time consuming and the research involvement in the data collection characterises the approach.

I will be the most active member of the research and theory often sets under the study to understand the meaning and the significance of the research (Lather, 2006; Torrance, 2005).

There are three main methods that are used in the data collection when using the qualitative research method. These methods include the interviews which are mostly interactive, the written assumptions and also observations.

The interactive interviews are when people are asked questions verbally and required to respond to them when the interviewer is either writing down responses or recording. In this case, people are required to describe their experiences for a given phenomenon.

On the other hand, the written interviews, people are required to participate the interviews through written descriptions of their experience over a given phenomenon while in the observations require the verbal observations of the behaviours and come up with conclusions.

The aim of the study is to come up with a detailed and an informed understanding of the subject to study through interacting with people. This means that, the best way to achieve the goal of the research is to interact with people and conduct a personal interview.

Compared to other methods of data collection, personal interviews are the best and very important in qualitative study because this ensures that the research have the best interactions and the subject will be able to capture the different aspects of the phenomena in the study that could be on the other hand be lost by other methods of data collection (Cohen et al., 2000).

There are different methods of interviewing and this particular study will use a semi-structured study. The semi structured interview will familiarise a set of questions and will assist the research in focusing on the different aspects of the study or the phenomena.

The other reason why the semi-structured interview has been selected for this study is because it is flexible and allows a new set of questions to be brought up during the interview session in response to what the interviewee says (Torrance, 2005). On the other hand, the semi structured will bring up a set of themes; there is probability that the information given by the interviewee will need a deeper understanding of the subject in order to get the real meaning of the subject.

The semi-structured interview in this study will help in gaining a range of insights on given specific issues. This method is less intrusive because it is based on two-way communication rather than a formalised interview. It will provide researcher to get more information about the issues and make it easy to discuss sensitive issues as well (Denzin, 1994

Significance of the Research

The research will be guided by the use of approaches and ethical procedures of collecting data. All the data would be gathered from the Questionnaires, Interviews and Observations. The results would be analysed firstly, to see if the attitudes change after the information on the UK adopted the Euro compared to before. Secondly, to see if the knowledge has increased after undertaking the research on the topic of adopting the Euro, Statistical analysis of the questionnaires and surveys would be undertaken to assess the reliability of the data.

Paradigm used in this study

As I mentioned above, the traditional research paradigm is not suitable when dealing with human subject because the variables require handling and this can harm the human subjects.

There are ethical and realistic reasons why there are variables in research that cannot be held constant or change in an experiment.

This study will mainly deal with human subjects since they are the main stake holder in the subject. This means that a different approach will have to be used and the research will have to use research explanation paradigm.

This will be like holding an in-depth questioning of the subject to establish the trust like questioning people who are the stake holders in the issue of whether the UK should adopt the Euro. This research will be set in explanations paradigm in order to understand, how and why something mainly happens (Henning et al, 2004).

Research Ethics

The ethical considerations are very important issues to consider in the research because respecting other people, honesty and academic integrity, can establish an ethical responsible research work. To validate the research, there were several ethical issues that were taken care of which was found in the research (Schein, 2004).

A researcher committed to producing an ethical responsible research, addresses the issues of informed consent of the participants and the organisation, confidentiality and anonymity, and reciprocity (Schein, 2004).

I am more concerned to the participants’ feelings in a qualitative research; and ethical issues need to be well addressed in qualitative research. A research that is ethically responsible ensures the participants do not face any problems or difficulties for the participating in the research.

This is a very important consideration in this research because of the sensitive nature of the research issue. Avoiding questions such as name of the respondent, their designation etc has assured the respondents that they would not be identified on the basis of the research. Anonymity is essential especially when researching for a controversial and a sensitive topic. Anonymity of the entire case or of the individuals is being maintained (Livingston, & Lunt, 2004).

Research Philosophy

I began this research through understanding the general factors if UK should adopt the Euro or not, by accessing helpful and relevant sources I will be researching on will help me acquire important and significant information that will help in conducting the primary research.

The approach to this research, the way data is collected and analysed, is a direct consequence of one’s belief about the world, and to a small extent depends on the issue being researched (Macdonald, et al, 2002).

Research philosophy is the way one thinks about the development of knowledge and affects the research approaches, the research methodology and the data collection methods. A well understood research philosophy is vital in the clarification of the right research design that would be used as well as how the research design can be adjusted to fit the current setting on how the research will be carried (Creswell, 2003).

In this regard, I had to closely look for a method that will not affect anyone’s relationship the research philosophy will determine the carefulness and consideration that may bring in bias. The research philosophies are different and differently analysed because the entire research should adopt a mixed approach. One should always be cautious not to have contradictory results especially when both of the qualitative methods are used.

Positivists’ separate the respondents from their social context for this research, it is important to view the respondent’s in their framework, to understand their perceptions. A highly structured research design is preferred by the positivists, which restricts the findings to a small extent. Possible positivist paradigm weakness is that, it is not very useful in understanding the processes or significance of people attached to actions. In this particular research, should the UK adopt the Euro: is an important factor to understand what factors and meanings that concerned parties attach to different reasons.

Also, the social constructivists approach, and the complementary qualitative method are suitable in this research because of their ability to understand people’s meanings and adjust to new issues and understandings as they emerge (Creswell, 2003).

Data collection

The method of data collection for this research study will be well planned to ensure efficiency and accuracy in the process. In this case, a team of expertise in different fields like businesses will be included in the research process.

The process of data collection will also be varied and will include data collection from different fields. This is on the basis that, we need to know and understand whether UK should adopt Euro (Thurau & Hansen 2000).

A great deal of concern will also be focused in the determination of relationship between government and the people in the issue of Euro being adopted.

In this phenomenon, various samples of people will be taken and interviewed on the motivation they receive from the issue; this study will use merging of the modern technology in determining the relationship between all people in the issue. This will be done through interviews, questionnaires and observations; this information will be utilised in determining the satisfaction of both parties (Kuballa 2007).

The long culture of the factors of adoption of the Euro will be examined in order to show how they affect the living and the relation between UK and other member countries (Evans, & Lindsay 2007).

A consideration will be made in the collection of data among the people in order to determine those who have been satisfied and those who have been dissatisfied with the issue of adopting the Euro.

In doing this, a sample of 25 customers over the age of 25 will be selected which will help in providing precise information needed to make a viable conclusion (Oliver 2009).

According to my knowledge I will be asking males and females over the ages of 25 for my sampling, the reason why I have chosen this is because older people will have more knowledge as they are more concerned of the economy.

In my sample I have chosen to interview bank managers and businesses as I think they will provide a better scope of understanding on whether UK should adopt the Euro. I have predicted that it should take at least 15 minutes to interview and I plan to meet four managers and businesses of what they think, If the UK should adopt the Euro or not. They will also provide me with the anticipated results of my subject which I could analyse later on in the project. I will be using a recording device which will help me acquire all the information I need. I will also provide a questionnaire as well but I want in depth information which will make it easier for me by using a recording device.

In accordance with previous works by different researchers, table regression and data testing have yielded results in collection of data. With this in mind, this research is not exempt from using such viable methods. More importantly, the work of different research and scholars will be utilised to give a green light in the right criteria for attaining good results. Specific methodology for this research will be literature review of various authors who have previously tacked this topic (Oliver 2009).

Reliability, validity of research
In any research, reliability, validity and replication are important considerations and these are important as it was used in determining the choice of the methodology. Consistency and purity is a measure of attributes and reliability and on the other hand repeatability and stability is also an important aspect of reliability.

Reliability is given higher importance in quantitative research. These four constructs are similar to the constructs reliability, reliability and validity which are measures of quantitative research (Livingston, & Lunt, 2004).

It is difficult to achieve external reliability in qualitative research because the settings change, and that's why it is difficult to repeat the entire study in the same setting as when researched previously. External validity deals with generalising the results that goes beyond the research setting (Schelkle, 2009).

It would be useless if the research conducted has no validity. It’s always important to validate the research to avoid all efforts that are made in doing this research pointless.
Any research which is not reliable is not valid. Agreeing validity deals with the issue of whether the question is truthful and honest and the predictive research deals with the forecasting.

Validity of the research is a degree by, which findings are able to present the reality in an accurate way. Validity is also concerned with the extent to which the findings are original. Face validity determines if the constructs used actually represent what they should. A number of hypothetical constructs could be used in the research, and the extent to which the chosen construct is coherent with the findings is construct validity (Livingston, & Lunt, 2004).

Data analysis
After the data has been collected from the field, adequate analysis and interpretation will be done to come up with accurate conclusions and assumptions. In this aspect, the previous works of researchers will also be fully utilised making the analysis. The information obtained from this study will be compared from other researchers who had studied the same topic. The information made from the results of the study will be used in the justification and support of the hypothesis of this study (Schneider & White 2004).

From this study data I will be analysing according to the topic of the study and will be related to the works of other researchers. This will help in coming up with a viable conclusion which will be used by the government, economists , business people as well as the general public in making an informed decision about the subject of our study (Sachs, 2002).

 
Results

By analysing the results obtained from both the interview and questionnaire, it is quite clear that most of the people are not supporting the idea of adopting the Euro. The number of interviews which were taken in total was 8. I collected my findings from the North West of Blackburn town centre these included b