The euro has been used for non-cash transactions since January 1, 1999. On January 1, 2002, euro coins and notes became available. And by the end of February 2002, the national currencies of Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, and Spain were withdrawn in favor of the euro.

But not all European Union (EU) members favor the adoption of the single European currency. In a nationwide referendum in September 2000, Denmark voted 53 percent to 47 percent against membership in the euro area, also known as Euroland and the Eurozone. Three years later in September 2003, Sweden followed with a similar vote — 56 percent to 42 percent — rejecting the euro. And according to analysts, the United Kingdom is unlikely to adopt the single European currency any time soon. Why have Denmark, Sweden and the UK decided against the euro?

Arguments against Participation

Those against Eurozone membership argue it would erode national sovereignty and hand over power to the European Central Bank whose “one size fits all” policies may not be welcomed. Furthermore, many are concerned that the single currency could lead to a political union that may promote legislation that they do not support.

The UK, which has been especially critical of the euro, has established five economic tests that it says must be met before it calls a referendum. The key test is whether the UK economy is converging with those in the Eurozone, and whether this can be sustained in the long-term. The second test deals with the country’s ability to cope with the changes adopting the euro would bring. And the remaining three tests assess the impact of this on jobs, foreign investment and the financial services sector.

Prime Minister Tony Blair and Chancellor Gordon Brown support adopting the euro and wish to have a referendum on the issue before the next general election in mid-2006. But the Tories, the opposition conservative party, are against joining the euro in the immediate future. Britain’s attachment to its relatively stable pound sterling, which has an unbroken history of more than 900 years and has dominated global trade for decades, is proving difficult to break.

The Eurozone Has Many Benefits

The Eurozone, which represents a population of 305 million people, has benefited from the single European currency in a number of ways. According to an EU study, the single currency eliminated transaction costs related to the existence of various EU currencies estimated at 0.5 percent of gross domestic product (GDP). Other studies estimated this cost closer to 1 percent.

An International Monetary Fund study projected the euro would increase GDP growth in participating member economies each year, and by almost 3 percent in 2010. Plus, greater macroeconomic stability and reduced governmental deficits are anticipated in an economically stronger Euroland. These and other benefits generated by the euro are attractive to newcomers.

Does EU Expansion Mean Euro Expansion?

The 15-member EU body, with a population of 375 million, is currently negotiating with 13 additional countries to join the trade bloc. The Czech Republic, Hungary, Poland, the Slovak Republic, Slovenia, the Baltic states of Estonia, Lativia and Lithuania, and the Mediterranean islands of Malta and Cyprus are expected to accede to the EU in 2004. Two other applicant countries, Bulgaria and Romania, may join by 2007. A 13th hopeful, Turkey, has not been given a date to begin accession negotiations. Do they wish to join Euroland? If so, when? Unlike existing EU members, the accession countries are not being given an option on the euro. They will have to adopt the euro as soon as they fulfill the required criteria. But that still may take time, at least several years in the earliest cases.

More Business To Be Conducted in Euros

According to the Conference Board, a research organization, 60 percent of world trade is currently denominated in dollars. In the event that the greenback falls from first place, a position it has held since usurping the British pound after World War I, more global business will be conducted in euros.

Regardless of which currency is on top, expect more European companies to request that business be completed in euros. “While the euro has not been universally accepted politically and at the consumer level, it has grown to be the corporate currency of choice for commercial, trade and investment purpose for companies doing business with Europe and surrounding countries,” says Frank Abraham,” Treasury Management Sales Executive, EMEA, at Bank of America.

This article appeared in December 2003. (BA)

John Manzella
About The Author John Manzella [Full Bio]
John Manzella, founder of the Manzella Report, is a world-recognized speaker, author of several books, and an international columnist on global business, trade policy, labor, and the latest economic trends. His valuable insight, analysis and strategic direction have been vital to many of the world's largest corporations, associations and universities preparing for the business, economic and political challenges ahead.

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