Economic Tests For UK's Euro Entry Have Been Passed, Study Suggests

by Robert Lee, Tax-News.com, London

02 July 2002

A new study released on Monday has suggested that the United Kingdom has passed the five economic tests for euro entry.

Speaking yesterday the report's author, Professor of International Economics at South Bank University, Iain Begg explained that:

'We would have reached a negative assessment five years ago, but there has been far more convergence and other developments which mean we now believe there is a clear and compelling case for entry. On economic grounds we believe the five tests have, on balance, been met, but we also recognise there is going to be a political element in this decision.'

UK Chancellor Gordon Brown stated recently that he would only recommend entry to the eurozone if there is 'clear and unambiguous' evidence that the five tests have been met. According to a report in Monday's Times newspaper, Professor Begg believes that his study, entitled 'The UK and the euro, an evaluation of the five economic tests' provides just such evidence, and could pave the way for a referendum in 2003.

With regard to the first test, which stipulates that there must be convergence between the UK's economy and those of other eurozone countries, the study suggests that there exists a 'growing convergence between Britain's economy and those in the eurozone,' and suggests that entry to the single currency is likely to enhance long-term economic stability by reducing exchange rate volatility.

The report, co-authored by Professor Begg and hic colleagues at South Bank University, Brian Ardy and Dermot Hodson, also concludes that the British economy is flexible enough to be able to withstand shocks, that reduction in currency volatility as a result of joining the euro would increase the country's attractiveness as a location for investment, and that euro entry would afford the UK's financial services industry with a great many new opportunities.

'To the extent that a single currency promotes further competition, membership will provide the City of London with the opportunity to exploit its competitive advantage yet further,' the Times quoted Professor Begg as observing.

The report also suggests that the aforementioned beneficial features of euro entry would result in 'higher economic growth and job creation, answering the fifth economic test, which states that the effect of joining the monetary union on employment and growth must be positive.

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