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The government's policy on membership of the single currency remains as set out by the previous 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 UK membership of the EMU. In practice, the economic conditions must be right, and a decision on membership of the single currency will be based on whether there is a clear and unambiguous economic case for membership. Whenever the decision to enter is taken by the Government, it should be put to a referendum of the British people.
The basis for deciding whether there is a clear and unambiguous economic case for membership is the Treasury's assessment of the five economic tests: These are:
1. Are business cycles and economic structures compatible so that we and others could live comfortably with euro interest rates on a permanent basis?
2. If problems emerge is there sufficient flexibility to deal with them?
3. Would joining EMU create better conditions for firms making long-term decisions to invest in Britain?
4. What impact would entry into EMU have on the competitive position of the UK's financial services industry, particularly the City's wholesale markets?
5. Will joining the EMU promote higher growth, stability and a lasting increase in jobs?
The last assessment of the 5 tests was published in June 2003. While the assessment concluded that the five tests were not met at the time, it also set out a reform agenda on concrete and practical steps to address the policy requirements identified by the assessment of the five tests. In his statement to the House of Commons on 9 June 2003, the former Chancellor committed the Government to an annual review of progress. The 2008 budget stated that "The Government does not propose a euro assessment to be initiated at the time of this Budget. The Treasury will again review the situation at Budget time next year". The publication "The UK economy: analysis of long-term performance and strategic challenges", published alongside the 2008 budget, sets out progress on the reform agenda for meeting the five tests.
Out of the 27 Member States of the European Union, 15 already form part of the euro area (Austria, Belgium, Cyprus, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovenia and Spain).
Twelve of these countries have been using euro cash since 1 January 2002. Slovenia adopted the euro on 1 January 2007, and Cyprus and Malta adopted the euro on 1 January 2008.
Ten of the other countries are Member States with a derogation (Bulgaria, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia and Sweden) which will join the euro area as soon as they fulfil the necessary conditions on the basis of the "Maastricht" convergence criteria following the established procedure. UK and Denmark have a special status allowing them to decide when (and if) they will join the euro area. Slovakia is expected to join the euro on 1 January 2009.
BERR and other government departments are working closely with the Treasury to ensure business and public authorities are prepared for the euro. Treasury is responsible for making plans for a possible national changeover to the euro and for ensuring that the UK retains a genuine option to join the single currency, if that is what Government, Parliament and the people, in a referendum, decide. The third outline National Changeover Plan (oNCP) provides a comprehensive statement of how Government would manage a UK changeover. This plan, together with other documents relating to UK euro preparations, can be found on the Treasury Euro website (see related external links).
Further information on the Euro is available for business from the Trading in Europe pages of the Business Link website, and more generally on the European Commission website (see related external links).
Contact
Response Centre
Tel: 020 7215 5000
or: 020 7215 6740 (Minicom)
Fax: 020 7215 0105
email: berr.enquiries@berr.gsi.gov.uk
