Question

The time is 2015 after the end of the worst of the euro crisis in 2012, the european monetary union and the euro have worked reasonably well. Britain has remained outside. You are attempting to convince a british friend that britain should join the monetary union as soon as possible. What are your two strongest arguments?

Answer 1

The two strongest argument in favor of Britain joining the monetary union are as follows:

a. Increase in overall investment level : A single currency leads to fall in the transaction cost in the economy. As the transaction cost falls, there is large amount of investment as cross border investment in the economy increases. This has also helped in making the money market deeper and integrated in the European economies.

b. Exchange Rate Stability - As the currency rates fluctuates, the profits of the company are impacted.This increase in risk reduces the level of net investment in the country. A common currency keeps the value of the currency stable and thus can boost trade in the country. The prices across different countries can also be compared efficiently.

Thus, the above two reasons provide a strong argument for Britain in joining the common monetary union.