Question #1. Pros and Cons of Britain joining Euro
Pros – If Britain joins the Eurozone, the European market will be much strengthened; the single currency might rival the position of the dollar in the international business arena, the single currency may prevent the national money from being attacked by global speculators. Moreover, if Britain does not join the share of the foreign investment might continue to fall (Research Briefs 2003), multinational companies are not sure that they want to locate in Britain because of the hardships with the money exchange. The trade between Britain and Europe is falling because of this exchange process.
Cons – Britain will trade its interest rates and monetary policy for a single vote on the council which sets the interest rates for the whole community. Thus the government will have to decide whether to cut the public spending or to raise the taxes. So far, the Britain has lower unemployment, lower inflation, and higher growth compared with Euroland (Elliott 2006). The ability to issue its currency is the essence of the national sovereignty. The inability to adjust interest rates to the own domestic economic conditions might lead to the economic slowdown.
Question #2. Mortgage and labor market
Britain has more flexible labor market meaning that people can rotate in the business environment and change the jobs more frequently. It is positive, from one side, because people have opportunities to contribute to the companies’ development and find the job they like. However, high rotation of workforce is not good, because the costs of maintaining skilled personnel are very high. If Britain joins Euro, the labor market will become more stable. However, the graduate specialists will have little chances to find well-paid jobs because people do not leave the companies and thus new employment places are not created unless somebody is promoted. Therefore, the impact of joining the Euro will hurt the employment rates of Britain.
The same situation is with the variable mortgage rates. The British economic costs will increase if the mortgage rates become fixed. However, the financial benefits will improve if Britain joins the Euro because every person under mortgage will be confident that the price is going up and down and the citizen will know what amount of payment to expect. The volatility of the housing market and its high potential for inflation are the key reasons why Britain has not joined the Euro yet (Britain not Ready for Euro 2003).
Question #3. What types of companies will benefit the most from joining the Euro.
I believe that the companies who trade intensively with the European countries will benefit the most from the single currency because the need for the currency exchanges will not be the burden for them anymore. For example, for the local company which sells its product or services to the local population the joining of Euro will have no benefits at all, they just do not need it. One of the primary concerns is that the British business cycles are not compatible with European and only those companies whose business cycle is the same as in Europe will benefit from the euro. Also, the companies that operate based on the international or outside investment will benefit because with euro the amount of investment is expected to be increased. Interestingly, the national poll indicates that more than 70 percent of the British population is against joining the Euro while according to the survey conducted among the CEOs of big companies more than 80 percent think that the single currency might boom the economic expansion of British business and increase the exports as well as imports.
Question #4. Why multinationals are interested in Britain joining the Euro.
The first and the most important reason why multinationals favor the Britain joining the Euro is the benefits of the single currency, such as an absence of the need to exchange the money, the visibility of prices and secure of comparing British prices with the European (Allan 1998). The market segmentation on European and British is no longer considered to be favorable, and the creation of the single market will eliminate the false assumption that the British goods are artificially priced higher. The single currency will help the economic convergence between the different European countries. These are the basic foundations for the multinationals to favor Britain joining the Euro.
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