3rd Mar 2024

Euro membership not good for all, study says

Britain and other European economies have little to gain from adopting the euro now, the author of a new report has claimed.

Researcher Richard Baldwin concluded in the report "In or Out: Does it Matter – An Evidence-based Analysis of the Trade Effects of the Euro" that countries entering the single currency could primarily see their imports go up as a consequence.

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  • The three non-euro countries Britain, Sweden and Denmark have suffered no loss of trade into the euro area (Photo: European Commission)

The report published by the Centre for Economic Policy Research in London also said that the three non-euro countries - Britain, Sweden and Denmark - have suffered no loss of trade into the euro area since 1999, but have rather seen their exports to the euro area nations expand.

In general, the study found that when countries adopt the euro, they import more from both other eurozone states and non-euro states.

If the UK were to join the euro on its own, Mr Baldwin says that its exports would rise by $3 billion while imports would rise by $18 billion.

The figures for Sweden and Denmark would be similar.

The extra sales to the euro area would amount to about 1 percent of total Swedish exports, while the extra sales by euro nations to Sweden would amount to about 5 percent of total Swedish imports. The corresponding Danish numbers are 1 percent and 6 percent.

Trade effects of joining the euro vary a great deal across nations; Spain seems to have been the biggest gainer while the benefit of adopting the euro for Greece is estimated in the report to be nil or even negative.

The trade effect also varies greatly across sectors, with gains concentrated in sectors such as machinery and transport equipment and chemicals, Mr Baldwin concluded.

The euro was introduced from 1 January 2002 in 12 of the 15 EU Member States.

The UK, Europe's second largest-economy has delayed its decision on joining the single currency until Chancellor Gordon Brown's five economic tests are passed, while Denmark and Sweden both voted against joining the eurozone in referendums.

"Personally, if you ask me do I think the euro was a good idea, the answer would be yes," Baldwin, who has worked for the US government and as a consultant to the European Central Bank and the European Commission, told Reuters.

"If you ask me do I think it's important for Sweden, Denmark and Britain to join, I would say, not really," he added.

Slovenia is now the first of the ten new EU member states that will join the euro in January 2007.

According to Mr Baldwin the bigger states such as Poland, Hungary or the Czech Republic could have some reason for wishing to maintain control over monetary policy and exchange rates.

But joining the euro is the only way to go for "minnows in economic terms," he told the news agency.

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