Euro or pound

Disponible uniquement sur Etudier
  • Pages : 5 (1179 mots )
  • Téléchargement(s) : 0
  • Publié le : 25 décembre 2009
Lire le document complet
Aperçu du document
“Should the UK adopt the Euro as its currency”?

The issue needs to be faced, of course, from different points of view. As for the citizen’s point of view, there are two sides that deserve careful consideration: the “domestic” and the “out of the border” point of views.

As for the domestic point of view, it cannot be denied that, practically in all of the European countries (surely in Italy,France, Spain and Germany), the introduction of the Euro caused, in general, a sensible rise in prices.

That was basically linked to the currency conversion rates fixed at that time. In Germany, let’s assume, the Deutschmark was exchanged at nearly 0,50 Euro, and exactly the same happened in Italy, where the reference unit could be identified in 1000 liras. New consumer prices in Euro werefixed tending to consider as a new unit the Euro and not simply converting the price in Euro, considering the original price in the old currency. So that, the original consumer prices were converted in a new unit that was nearly equal to the double of the previous unit of reference (two Deutschmarks or 2000 Italian liras). In other words, the introduction of the new currency was intended, by most ofthe trade operators, as a lucrative way to convert 1000 liras in one Euro (and not in nearly 0,50 Euro), one Deutschmark in one Euro (and not in nearly 50 Eurocents) somewhat like a process tending to halve the spending power of all citizens. By and large, the same process occurred in France and Spain.

In the UK, on the contrary, despite the Pound is currently quoted at its lowest value since,at least, a decade (allegedly because of the extremely low interest rate and because of the political forces seem to be comfortable with this trend), the Sterling is quoted at a higher value than the Euro (currently 0,90 circa). If the same process previously occurred in the other European countries should take place in the UK too (1 Deutschmark = 1 Euro; 1000 Italian liras = 1 Euro) the spendingpower of Brits should even improve, but it’s unlikely it will actually happen. Worse comes to worse, in the domestic market it won’t change anything. You’ll be possibly able to still buy a product you were used to pay 10 Pound, 10 Euros.

As for the “out of the border” side of the matter, the reference is still to citizens, a so weak Pound would really be a problem. Those of you who are used totravel abroad, have already experienced a sharp increase in costs. If last year you would have spent approximately 6,70 GBP to buy something costing 10,00 Euros, you need now to spend about 9 GBP to buy something of the same value. But, as you can see, this is not a Euro adoption related problem, but a Pound exchange rate related problem. As for this side, if anything, adopting the Europeancurrency will save you to pay the additional fees due for every transaction regulated in foreign currency (usually 1,50/2% of the amount paid).

Once again, this kind of problem, seems much more related to the “deliberate” weakness of the Pound rather than to the adoption of the European currency itself.

It could be interesting having a look at what happened, at the time, in the Republic ofIreland, in that the Irish Pound was well above the Euro (conversion rate 0,7875).

On the other hand of it, I think it’s absolutely predictable the manufacturers point of view on the subject. A too strong Pound makes their output very difficult to sell abroad. By and large, they pay the “input” required to produce their products or to deliver their services, in Pounds and have to sell it in Euros or,even worse in USDs. The EADS, for instance, which is the Holding company producing the Airbus in Europe (France, Spain, Germany and UK) experiences harsh times when trying to compete with Boeing to sell aircrafts in the US, especially when the USD is particularly weak. A slight change in the currency rate (aircrafts cost million dollars) accounts for sensible difference in price and, also in...