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Last Updated: Monday, 9 June, 2003, 16:45 GMT 17:45 UK
Euro case studies at-a-glance
The Treasury released 18 case studies on Monday examining whether the UK is ready to join the euro. BBC News Online extracted key points from the studies and the chancellor's own economic assessment.


EMU and trade study

  • Trade with the UK's euro partners could grow between 5% and 50% over 30 years if the UK joins the euro

    The Treasury has prepared 18 background studies
    The studies run to more than 1,800 pages and weigh about a stone (6kg)
    The studies have been written by Treasury officials and several outside experts
    The studies examine subjects such as the housing market, trade, the optimal exchange rate for entering the euro, the labour market and business cycles

  • The UK could be between 5% and 9% richer if it joins the euro (and trade grows at the upper end of expectations)

  • UK trade - exports plus imports - in goods and services with the EU is currently equivalent to just under 30% of the UK's GDP (lower than for Germany, France and Italy)

  • The share of UK trade with the US exceeds that of other large EU economies

The chancellor's economic assessment

  • British trade with the European Union has grown from 40% of total trade in 1973, when the UK joined, to 55% today

  • Adopting the euro would lead to greater cross-border trade and an increase in commerce and growth

  • Growth of trade inside the eurozone could deliver higher living standards and lower prices

Housing market

Housing, consumption and the EMU study

  • A common European interest rate could lead to instability in the UK housing market, if the UK joined the euro

  • Strong fluctuations in the housing market have been a striking feature of British economic life over the past three decades

    Gordon Brown
    Convergence between the UK and the eurozone (failed)
    Flexibility of the UK economy to adapt (failed)
    Impact on jobs (failed)
    Impact on financial services (passed)
    Impact on foreign investment (failed)

  • Mortgage debt in the UK is at 60% of GDP, well above the EU average

  • More than 60% of new UK mortgages are based on a variable interest rate, while in Germany 80% of mortgages are based on fixed rates over five years

  • Differences between the UK and eurozone mortgage markets mean that household spending in the UK is more sensitive to movements in interest rates

  • House prices in the UK have increased at double the rate of prices in France and Italy, while prices have hardly changed in Germany

  • Evidence suggests that there has been little convergence of the housing markets in the eurozone since the launch of the euro
The chancellor's economic assessment

  • The volatility of the UK housing market is a problem for the stability of the economy, but an obstacle the chancellor is determined to address

  • The chancellor is planning housing market reform to alter the supply and demand imbalance

  • An independent review is examining the case for long-term fixed mortgage rates

Exchange rate

Estimates of equilibrium exchange rates for sterling against the euro study

  • The best exchange rate for joining the single currency values the euro at about 73p, or the pound at 1.37 euros (under the current exchange rate, the euro is worth about 71p)

  • The pound has been substantially overvalued in recent years

The exchange rate and macroeconomic adjustment study

  • Exchange rate changes in the UK appear to have absorbed shocks that might otherwise have had a greater impact on the economy

  • Individual business sectors are more vulnerable to large exchange rate movements than the economy as a whole

  • Fixing the euro-sterling exchange rate would remove one of the adjustment mechanisms available to the UK economy

  • Analysis shows exchange rate volatility would tend to be lower if the UK adopted the euro

The chancellor's economic assessment

  • If the UK enters the euro at the wrong exchange rate, unemployment would rise and growth would stall


Prices and EMU study

  • Prices should come down, leading to greater transparency and competitiveness

  • Consumers should benefit from greater quality and choice of goods

  • Prices across the eurozone could still differ to some extent because of the cost of local transport, taxes and wages

  • Compared to the eurozone, UK prices currently tend to be at the high end for a number of products

The chancellor's economic assessment

  • Adoption of the HICP measure of inflation - to replace the current RPIX indicator - will give the UK a more accurate picture of inflation and fall in line with best international practice

Business impact

Analysis of European and UK business cycles and shocks study

  • The UK business cycle is strongly correlated with the US, more so than with cycles in Europe

  • Fluctuations in UK GDP have been sharper than those of the major continental European economies

EMU and business sectors study

  • Consumers will benefit from increased competition in the UK service sector, if the UK joins the euro

  • EMU membership should be of disproportionate benefit to small and medium-sized companies, by removing currency barriers to trade

The chancellor's economic assessment

  • Joining the euro would see a cut in borrowing costs for business

  • The euro would mean lower transaction costs for consumers and businesses, estimated to be worth an extra 1bn a year

  • Both large and small companies would benefit from diminished exchange rate volatility, especially in the manufacturing sector

  • There is optimism about increasing the compatibility of business cycles, but structural differences remain, which could pose a risk to stability


EMU and labour market flexibility study

  • Flexibility of wages in the UK could be "more severely tested" if the UK decided to join the single currency

  • Labour market flexibility has improved in the UK, although the government needs to do more to advance its long-term goal of employment opportunities for all

  • Progress in achieving a flexible labour market across the rest of Europe has been mixed with only smaller EU states showing real signs of improvement

The chancellor's economic assessment

  • Joining the euro would be a boost for jobs and inward investment, if the two tests on convergence and flexibility are eventually met

  • Wage flexibility will be needed to ensure stability in the euro, if business cycles diverge

  • The chancellor's test for the "impact on jobs" failed

Financial services

The location of financial activity and the euro study

  • Evidence shows that London has participated fully in euro financial markets, since the introduction of the single currency

  • Increases in demand for euro-denominated assets have not been to the detriment of London, which has managed to maintain its market share

  • The dynamic nature of the financial services sector means that London's strong performance in the last four years provides no grounds for complacency

  • An efficient financial services sector in the UK plays a key role in increasing the growth of the UK economy

  • Companies in the UK financial sector are able to quickly relocate if they consider the UK is no longer a competitive location

The chancellor's economic assessment

  • The UK financial services sector will remain competitive in or out of the euro

  • Of the five economic assessments, the "impact on financial services" was the only one that passed

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