European Monetary Union and the United Kingdom

May 2006

This paper considers the policy of the United Kingdom Government on the European Monetary Union.

When the European Monetary Union was established, the United Kingdom Government stated that it was in favour of United Kingdom membership of the European Monetary Union in principle, but in practice they established five ‘economic tests’ to assess whether economic conditions would be ‘right’.

The Treasury confirmed that:

“Government policy on membership of the single currency is unchanged. It remains as set out by the Chancellor in his statement to the House of Commons in October 1997, and again in the Chancellor’s statement on the five tests assessment in June 2003.

“In principle, the Government is in favour of United Kingdom membership of the European Monetary Union; in practice the economic conditions must be right. The determining factor underpinning any Government decision on membership of the single currency is the national economic interest and whether the economic case for joining is clear and unambiguous.

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

The ‘Five Economic 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 it is good for unemployment

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

For full briefing paper please click here.

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