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Summary The European Union and the Euro
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The European union and the EuroThe Euro
The single currency and the eurozone
Single currency (the Euro) came into existence on 1 st January 1999. Countries that adopted this
currency were collectively known as the Eurozone. The Eurozone countries firms can pay for supplies
from any Eurozone country without having to exchange any currency, saving time and money.
UK chose not to join the Eurozone and kept the (£) as their currency.
Advantages of not joining the Eurozone:
B of E would not be able to set interest rates for the UK economy. This would instead be set
by the European Central Bank which would limit the ability of the UK government to control
economic growth and inflation.
Being able to raise and lower interest rates in the UK is a key weapon in the governments
economic armoury. Lowering interest rates to encourage spending has been a common
strategy used by the UK government in an attempt to get the economy out of a recession.
Eurozone countries don’t have the uncertainty of exchange rate fluctuations.
Disadvantages of not joining the Eurozone:
Exchange rate fluctuations impose risks for businesses. UK businesses could lose out if the
exchange rate fluctuated and they had to pay more for their supplies originally anticipated.
UK firms need to pay commission to banks to exchange the pound to euros. Eurozone
competitors don’t have to pay this commission hence have a cost-advantages over their UK
competitors.
European union is a political and economic grouping that currently has 27 member countries.
Single market of the European Union aims to make the whole of Europe the ‘home market’ of all
businesses operating within the European union.
Main features of the single market:
No barriers to trade between member states – this means no quotas on imports and
exports.
No tariffs on goods and services traded within the single market.
Free transfer of resources from one country to another.
Consistent standards from one country to another.
Advantages of single market for businesses:
Increased levels of demand due to access to larger market.
Lower costs through EOS.
Access the best finance and capital raising deals throughout Europe.
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