On January 1 1999^st the European Single Currency, the Euro, came into being. The UK is not currently a member of this new currency and we have been promised a referendum on the issue before any decision to join is made.

The 'pros'. On the pro side the benefits touted for the Euro are the benefits of reduced trading costs across Europe. When businesses trade across national frontiers they will no longer have to pay the costs of converting currencies. Additionally, if a company does a large proportion of its trade with other European Countries, using a single currency removes the exposure of the company to large movements in currency exchange rates that might suddenly reduce the value of its business. The main benefit that is quoted in continental European countries is, however, that the creation of a single currency is the next major step towards political union. The German government re-emphasised this immediately after the launch of the Euro. The UK government is in fact the only EU government that believes that the Euro will save money. The other member governments believe that it is a necessary price to pay for moving towards a new federal European nation.

The 'cons'. The arguments against the Euro are that although the trading costs may be reduced, benefits of £16 billion are expected over the next decade, the costs of converting to the use of the Euro are enormous. The costs of the UK converting to the Euro are estimated at £50 billion. In January 1999 IBM predicted that it will have cost $160 billion to convert the computer systems of the EU's financial sector, alone! Any benefits are going to be a long time coming.

One of the benefits of having multiple currencies is that it allows adjustments between economic areas when different rates of growth occur in different areas. If this adjustment does not exist then, for example, interest rates set for one area currently booming may further cripple another area that is in recession. This fact was highlighted by Eddie George, the Governor of the Bank of England. He was forced to admit that the Bank was having to set the UK's interest rates for the benefit of the South of England where he was concerned about the financial sector, even though this may result in the loss of manufacturing jobs in the North of England. Another example is Ireland whose economy needed an interest rate of nearer 7% not 3%, consequently annual house price inflation reached 30% and wage claims reached as much as 140%. This problem will obviously be much greater when a European Central Bank has to set interest rates for the whole of Europe.

Under a Single Currency this problem would be much worse for the UK than other European countries too. The UK's trade is much more international than most of continental Europe. More than 50% of the UK's trade is with countries outside Europe (N.B. this figure is the total trade including so-called 'invisible' trade). Additionally the UK is a major oil producer, unlike most of Europe, and so its economy will also fluctuate with the price of oil. The methods of personal finance used in the UK are also different. We use bank and building society mortgages to buy houses, for example. In most of continental Europe, loans are only available from banks and most people rent their houses. This means that high interest rates have much greater impact on UK citizens. All these things and more mean that the UK would have a disastrous time if it joined the Euro, even if the Euro worked perfectly well for the rest of Europe. George Soros, the Greek financier who made so much money when the Pound fell out of the European Exchange rate mechanism, was widely quoted after the launch of the Euro as saying that the pound will be at the mercy of speculators outside the Euro. What he went on to say, which wasn't so widely quoted, was that the UK would be better tying the pound to the dollar as the UK's economy and trade was much more in line with the dollar markets outside Europe.