United Kingdom and the euro
The United Kingdom's currency is the pound sterling and it has not declared plans to adopt the euro in the foreseeable future. The UK negotiated an opt-out from the part of the Maastricht Treaty that would have required it to adopt the common currency, and the coalition government elected in May 2010 pledged not to join the euro for the lifetime of the parliament.
British public opinion has consistently opposed joining the euro. Opinion polls in 2005 (57 percent opposed), 11–12 December 2008 (59 percent opposed) and 6–8 January 2009 (64 percent saying they would vote no to a change of currency) demonstrate this opposition. In a poll taken for BBC Radio 4 between 19–21 December 2008, 71% of respondents said they would vote No whilst 23% of participants would vote Yes, and 6% were undecided. The economic recession in Britain and the fall in value of the pound have not contributed to a change in public opinion. A poll conducted in early May 2009, showed increased opposition, with 75% of respondents pledging to vote against joining the euro. However, an April 2010 YouGov poll, the percentage of people not wanting to join the euro and the percentage of people wanting to join the euro decreased, by 10% and 2% respectively, and the percentage of unsure people increased by 12%, in comparison to the poll by the ICM in the previous year. By August 2011 the percentage of people not wanting to join the euro had reached a new high of 85%.
The government of former Prime Minister Tony Blair declared that "five economic tests" must be passed before the government could recommend the UK joining the euro and promised to hold a referendum on membership if those five economic tests were met. The UK would also have to meet the EU's economic convergence criteria (Maastricht criteria), before being allowed to adopt the euro. Currently, the UK's annual government deficit to the GDP is above the defined threshold. The government committed itself to a triple-approval procedure before joining the Eurozone, involving approval by the Cabinet, Parliament, and the electorate in a referendum.
In the UK general election 2010, the Liberal Democrats increased their share of the vote, but lost seats. One of their aims was to see the UK rejoining ERM II and eventually joining the Euro, but when a coalition was formed between the Liberal Democrats and the Conservatives, the Liberal Democrats agreed that the UK would not join the euro during this term of government.
An assessment of British membership based on five economic tests was published on 9 June 2003 by Gordon Brown, when he was Chancellor of the Exchequer. Though maintaining the government's positive view on the euro, the report opposed membership because four out of the five tests were not passed. However, the 2003 document also noted the considerable progress of the UK towards satisfying the five tests since 1997, and the desirability of making policy decisions to adapt the UK economy to better satisfy the tests in future. It cited considerable long-term benefits to be gained from eventual, prudently-conducted EMU membership.
Some believe that removing the United Kingdom's ability to set its own interest rates would have detrimental effects on its economy. One argument is that currency flexibility is a vital tool and that the sharp devaluation of sterling in 2008 was just what Britain needed to rebalance its economy. Another objection is that many continental European governments have large unfunded pension liabilities. They fear that if Britain adopts the euro, these liabilities could put a debt burden on the British taxpayer, though others have dismissed this argument as spurious.
Some argue that as intra-European exports are 60% of the UK's total exports, a single currency would enhance the Internal Market by reducing the cost of exchanging currency for businesses and travellers, and reducing currency risk. An interesting parallel can be seen in the 19th century discussions concerning the possibility of the UK joining the Latin Monetary Union.
The entry of the UK into the Eurozone would likely have a positive effect on trade with the other members of the Eurozone. It could also have a stabilising effect on the stock market prices in the UK. A simulation of the entry in 1999 found that it would have had an overall positive, though small, effect in the long term on the UK GDP if the entry had been made with the rate of exchange of the pound to the euro at that time. With a lower rate of exchange, the entry would have had more clearly a positive effect on the UK GDP. A 2009 study about the effect of an entry in the coming years found that the effect would likely be positive, improving the stability for the UK economy.
In June 2003, Gordon Brown stated that the best exchange rate for the UK to join the euro would be around 73 pence per euro. (On 26 May 2003 the Euro had reached 72.100, a value not exceeded until 21 December 2007). The euro rose above 80 pence in 2008 and peaked at 97.855p on 29 December 2008. With the impact of the Global financial crisis of 2008 on the British economy: failing banks, plunging UK property values and the pound at 85.98p against the euro on 19 November 2008, some British analysts stated that adopting the euro was far preferable to any other possible solutions for Britain's economic problems. On 29 December 2008, the BBC reported that the euro had reached roughly 97.7p, due to poorer economic forecasts. This report stated that many analysts believed that parity with the euro was only a matter of time.
During 2009, the value of the euro against the pound fluctuated between 96.100p on 2 January and 84.255p on 22 June. In 2010 the value of the euro against the pound fluctuated between 91.140p on 10 March and 81.040p on 29 June. On 31 December 2010 the euro closed at 86.075p. The weakness and the volatility of the pound have raised concerns for the costs it entails for British consumers at home, and Britons living or travelling abroad. On the other hand, a report in Britain's Daily Telegraph has argued that the high euro has caused problems in the eurozone outside Germany. The Liberal Democrats have expressed interest in seeing Britain join the euro in the long term.
Aside from approval in a domestic referendum, the UK would be required to meet the euro convergence criteria before being granted approval to adopt the euro. As of the last report by the European Central Bank in May 2012, the UK only met 1 of 5 of the criteria.
|Assessment month||Country||HICP inflation rate
of annual rates)[nb 1]
|Budget deficit to GDP||Debt-to-GDP ratio||ERM II member||Long-term interest rate
of 10yr bond yields)[nb 2]
|2012 ECB Report[nb 3]||Reference values||max. 3.1%[nb 4]
(as of 31 Mar 2012)
(Fiscal year 2011)
|max. 60%, or decreasing
(Fiscal year 2011)
|min. 2 years
(as of 31 Mar 2012)
|max. 5.80%[nb 5]
(as of 31 Mar 2012)
|United Kingdom||4.3%||8.3%||85% (increasing)||No||2.49%|
|April 2013||Reference values||max. 2.5%[nb 6][nb 7]
(as of 31 Mar 2013)
(Fiscal year 2012)
|max. 60%, or decreasing
(Fiscal year 2012)
|min. 2 years
(as of 31 Mar 2013)
|max. 4.81%[nb 6][nb 8]
(as of 31 Mar 2013)
|United Kingdom||2.6%||6.3%||90.0% (increasing)||No||1.67%|
- The 12-months average for the annual HICP inflation rate must be no more than 1.5% larger than the unweighted arithmetic average of the similar HICP inflation rates in the 3 EU member states with the lowest HICP inflation. If any of these 3 states have a HICP rate significantly below the similarly averaged HICP rate for the eurozone (which according to ECB practice means more than 2% below), and if this low HICP rate has been primarily caused by exceptional circumstances (i.e. severe wage cuts or a strong recession), then such a state is not included in the calculation of the reference value and is replaced by the EU state with the fourth lowest HICP rate.
- The annual average for the yield of 10-year government bonds must be no more than 2.0% larger than the unweighted arithmetic average of the bond yields in the 3 EU member states with the lowest HICP inflation. If any of these states have bond yields which are significantly larger than the similarly averaged yield for the eurozone (which according to previous ECB reports means more than 2% above) and at the same time does not have complete funding access to financial markets (which is the case for as long as a government receives bailout funds), then such a state is not be included in the calculation of the reference value.
- Reference values from the ECB convergence report of May 2012.
- Sweden, Ireland and Slovenia were the reference states.
- Sweden and Slovenia were the reference states.
- The reference values for HICP inflation and long-term interest rates are calculated based on the "calculation principle" outlined in the 2012 ECB Convergence Report, with the input of forecasted data for the sliding assessment year 1 April 2012 - 31 March 2013.
- The 3 best performing countries in regards to HICP inflation were Greece (0.614%), Sweden (0.843%) and Latvia (1.567%), with no outliers detected.
- As Greece is part of a bailout program, and suffered from elevated interest rates significantly above the eurozone average (15.40% above), this country was excluded from the calculation of the reference limit for long term interest rates, leaving just Sweden (1.61%) and Latvia (4.00%) as benchmark countries.
Some eurosceptics believe the single currency is merely a stepping stone to a unified European superstate which they strongly reject, or argue against it on other grounds. In December 2008, bookmakers were offering odds-on bets that the United Kingdom would adopt the euro by 2014.
If the United Kingdom were to join the eurozone, this would affect the Crown dependencies and some British overseas territories that also use the pound sterling, or which have a currency on a par with sterling. In the Crown Dependencies, the Isle of Man, Jersey, Guernsey, and Alderney pounds all share the ISO 4217 code GBP. In the British Overseas Territories, the Gibraltar, Falkland Islands, British Indian Ocean Territory and Saint Helena pounds are also fixed so that £1 in the local currency equals £1 in sterling. The British Antarctic Territory and South Georgia and the South Sandwich Islands do not have their own currencies and use the pound sterling.
When France adopted the euro, so did the French overseas departments and territories that used the French franc. The CFP franc, the CFA franc and the Comorian franc, that are used in overseas territories and some African countries, had fixed exchange rates with the French franc, but not at par – for various historical reasons they were worth considerably less, at 1 French franc = 18.2 CFP francs, 75 Comorian francs or 100 CFA francs. The CFA franc and the Comorian franc are linked to the euro at fixed rates with free convertibility maintained at the expense of the French Treasury. The CFP franc is linked to the euro at a fixed rate.
It has been suggested that the sterling zone territories therefore have four options:
- Enter the eurozone as a non-EU member and issue a distinct national variant of the euro—just as Monaco and the Vatican have done. The EU has demanded that 'monetary agreements' be entered into by non-EU members who wish to issue their own euro coinage, and has pressured Andorra into not issuing their own coins until this is resolved. Such agreements, the EU has stated, must include adherence to EU banking and finance regulation.
- Use standard euro coins issued by the UK and other eurozone countries. This may be perceived by some as losing an important symbol of independence.
- Maintain their existing currency, but peg at a fixed rate with the euro. Maintaining a fixed rate against currency speculators can be extremely expensive, as the UK found on Black Wednesday. However, if the UK supports the keeping of the fixed rates of these small currencies, it would be so trustworthy that no speculation would take place.
- Adopt a free-floating currency, or a currency fixed to another currency, as the Jersey government has hinted.[dead link]
Gibraltar is in a separate position, as it is within the EU (as part of the UK's membership). If the UK were to adopt the euro it might not be possible to implement an opt-out for Gibraltar. It is unclear whether Gibraltar would be subject to its own referendum or would be included in a UK referendum, since Gibraltar votes as a part of the UK in European parliamentary elections.
Currently, some private banks in Scotland and Northern Ireland print and issue banknotes of their own design. The Banking Act, 2008 amended the right of Scottish and Northern Irish banks to produce banknotes. This does not apply in Wales which uses Bank of England notes.
In November 1999, in preparation for the introduction of the euro notes and coins across the Eurozone, the European Central Bank announced a total ban on the issuing of banknotes by entities that were not National Central Banks ('Legal Protection of Banknotes in the European Union Member States'). A move from sterling to the euro would end the circulation of sub-national banknotes as all euro banknotes have an identical design. However, as national variation is a requisite of euro coins, it remains an option for the Royal Mint to incorporate the symbols of the Home Nations into its designs for the British national sides of euro coinage.
New Sterling coin designs
The United Kingdom released new coin designs in 2008 following the Royal Mint's biggest redesign of the national currency since decimalisation in 1971. German news magazine Der Spiegel suggested that this decision was to reinforce the idea that the euro will not be adopted in the UK for a long while. It is however an unwritten convention that the coin designs should be changed every 40 years to keep the coinage fresh.
Parity with the euro
During the final months of 2008, the pound declined in value dramatically against the euro. This led many to believe that parity between the pound and the euro was imminent and created some media discussion about the possibility of adopting the euro. Alex Salmond, the First Minister of Scotland called for more Scottish businesses to accept the euro to encourage tourism from the Eurozone, noting that this is already done by organisations such as Historic Scotland.
At that time, some shops in Northern Ireland accepted the euro at parity, causing a large influx of shoppers from across the Irish border. This made some shops the most successful in their company for several weeks.
Between February 2009 and March 2010 the value of the pound fluctuated between 84 and 95 pence per euro. This compares with its value between March and October 2008, when the value of the euro was about 78 pence, and its value of about 70 pence between April 2003 and August 2007. The lowest value of the pound was on 29 December 2008, when it took 97.855 pence to buy one euro.
Polls on the question of whether the UK should join the euro. The wording of the question may have varied, but the figures show that the majority of British people are against joining the Euro.
|Date||YES||NO||Unsure||Number of participants||Held by||Ref|
|9–10 June 2003||33%||61%||7%||1852||YouGov|||
|10–15 February 2005||26%||57%||16%||2103||Ipsos MORI|||
|11–12 December 2008||24%||59%||17%||2098||YouGov|||
|19–21 December 2008||23%||71%||6%||1000||ICM|||
|6–9 January 2009||24%||64%||12%||2157||YouGov|||
|1–4 May 2009||23%||75%||2%||1002||ICM|||
|17–18 April 2010||21%||65%||14%||1433||YouGov|||
|2–4 July 2011||8%||81%||11%||2002||Angus Reid|||
|9–12 August 2011||9%||85%||6%||2700||YouGov|||
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