European Monetary Union and the United Kingdom

May 2006

This paperconsiders the policy of the United Kingdom Government on the European onetaryUnion.

When theEuropean Monetary Union was established, the United Kingdom Government statedthat it was in favour of United Kingdom membership of the European MonetaryUnion in principle, but in practice they established five ‘economic tests’ toassess whether economic conditions would be ‘right’.

TheTreasury confirmed that:

“Governmentpolicy on membership of the single currency is unchanged. It remains as set outby the Chancellor in his statement to the House of Commons in October 1997, andagain in the Chancellor’s statement on the five tests assessment in June 2003.

“Inprinciple, the Government is in favour of United Kingdom membership of theEuropean Monetary Union; in practice the economic conditions must be right. Thedetermining factor underpinning any Government decision on membership of thesingle currency is the national economic interest and whether the economic casefor joining is clear and unambiguous.

 “Since 1997, the Government’s policy has beento prepare and decide. Early planning ensures that a possible future changeoverwould be smooth and effective..”

The ‘FiveEconomic Tests’ are:

• Sustainable convergence between the UK and the economies of the single currency
• Whether there is sufficient flexibility to cope with economic change
• The effect on investment
• The impact on our financial services industry
• Whether is it good for unemployment

The Governmentused these ‘economic tests’ as the basis to take a decision on whether to enterthe European Monetary Union.

For fullbriefing paper please click here.