All entries for Friday 20 May 2005

May 20, 2005

Gordon Brown's 5 Conditions

The 5 Conditions that the chancelor set up in 1997 on whether UK should join the Economic Monetary Union of adopting the Euro :

1. Convergence: it must be shown that Britain's interest rates are sufficiently close to those of the eurozone, and its exchange rate sufficiently competitive such that entry will not harm the UK economy. Britain's business cycle and economic structure must be compatible with that of the Eurozone.

2. Flexibility: this means 'labour market flexibility'. Is there sufficient flexibility when problems emerge?

3. Investment : will Britain's membership of the euro help or hinder investment? Will it create better conditions for firms to invest in Britain?

4. Financial services : will joining the euro help or hinder the growth of the financial services sector?

5. Growth and jobs : it must be shown that joining the euro would enhance economic growth and job creation.

Only condition number 4 has been satisfied according to GB in 1997. Those who are Pro-Euro have criticised GB's 5 conditions to be vague, in-complete and abritary in terms of measurement and definition. Many commentators say that this seems to be a politically easy way out to 'wait and see' but is it politically right? It is difficult to justify what is politically right or wrong. It is difficult to make such huge decision like joining the Euro for the impact is tremendous and when the nation seem to be split in their opinions about joining because it benefits some but not all.

Even though the tests seem abritary, I have to say that the decision not to join the Euro is the right decision to make economically. Because the pound sterling and UK's financial service sector has managed to grow in spite of not joining the Euro over these years. Politically it has strained Britain's relationship with the rest of the EU countries and with other issues like the war in Iraq, there don't seem to be a common policy in a lot of issues between UK and the rest of EU. And like Wilhelm Nolling said The UK will be crazy to join the Euro

Political pressure will eventually lead to UK government joining the ERM but will the people of Britain vote for a Yes to Euro referendum is another question unanswered.


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