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Discuss the Impact on the Likely Success of Uk Membership of the Eurozone (40 Marks)

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Signing up to the Eurozone, would be one of the biggest risks that Britain could take, it could be very successful but it also runs the risk of being terrible for the UK economy. Around Britain there is very little enthusiasm towards joining the Eurozone, and this is due to the impacts it will have.
The likelihood of it having negative impacts on the UK is quite high, first of all there will be no devaluation. When in the Euro, you can’t devalue if your currency becomes uncompetitive. This has caused significant problems for countries like Spain, Italy and Greece. Compared to Germany, these countries have had higher wage growth, higher levels of inflation and low levels of productivity. This leads to their exports becoming uncompetitive and therefore reduces demand and lowers growth. At the moment, Britain has avoided this fate due to their ability to devalue, increasing their competitiveness and giving our economy more flexibility. If we were in the Eurozone this wouldn’t have been possible.
Also we would have no independent monetary policy, this involves setting interest rates. For the Eurozone all interest rates are set by the ECB, where as at the moment Britain set their own. This governing body of policies may not be good for the UK economy, in 2008 the UK was very hard hit by the financial crisis. In response, we were able to cut interest rates very quickly, and the Bank of England were able to pursue quantitative easing to try and stimulate economic growth. If we were part of the Eurozone I don’t believe that this would have been possible and the recession that we have been in since 2008 would have been much worse, for example Greece has had a terrible recession.
This point of interest rates would also have a large effect on UK Housing market. The nature of the housing market leaves it very vulnerable to changes in interest rates, In the UK many

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