UK: Ditch the Pound Sterling for Euros?

[PolePosition_1]

The pound has hit a new all-time low against the euro following further warnings that the UK economy is in worse shape than expected.

Sterling fell to €1.1391 this morning and also hit a record low against a basket of other currencies.

The pound's latest weakness came as economists warned Britain's economy was deteriorating faster than expected and could suffer badly in 2009.

The National Institute of Economic and Social Research warned today that the UK's gross domestic product shrank by 1% in the three months to November, more than the official estimates.

Howard Archer, the chief European and UK economist at IHS Global Insight, said he expected to see a further "substantial contraction" in the first half of 2009 and that there was unlikely to be any growth until 2010. He is predicting a 2% drop in GDP next year.

The weakness of the pound is a blow to the troubled UK retail sector because it increases the price of imported goods, as well as pushing up the cost of travelling abroad. It should help exporters compete, but the manufacturing sector has been hit by a fall in demand worldwide.

With the Bank of England expected to keep cutting interest rates, sterling is expected to keep falling. One trader predicted the pound would soon be worth just €1.07.

Source: http://www.guardian.co.uk/business/2008/dec/10/currencies-pound-euro

Surely its only a matter of time that the UK joins the Euro currency, with its deflated value with the current crisis, now would be a good time to join the currency.

The new low levels of the Pound Sterling, created by government bailing its banks out, and huge levels of borrowing, if we had the Euro, we wouldn't have this trouble, as it would not be such a huge percentage of increased Pound Sterling in the economy.

Feel free to slate my understanding here, as I'm no expert, but thats just my thoughts.

[Mark]

I doubt the ECB would accept our application!

[Tomi]

It would be good if they join, but maybe after that the economic situation gets a bit more stable, it would make the € more stable in the way that freepassengers like France and Italy monetary policy would effect the € less.
An other good reason would be that the us$ would become a less important currency.

[Bezza]

No Euro, thank you.

We either in boom or recession, right now is recession - the whole "credit crunch" is completely overhyped. We've been talked into a recession.

We'll come out of it soon and go into a boom again.

[RWD]

We'll come out of it soon and go into a boom again.

only after Gordon 'I saved the world' Brown is looking for a new job.

[J4MIE]

Yes I'm all for it :up:

[driveace]

I agree with Bezza,we are in a hiped up recession.Part brought on by the press.There are signs that the housing market will start to move again next year.The big thing that us savers dont want is the Euro with its low interest rates.With the pound I am still getting 7%on my investments ,which I would not get with the Euro !

[Tomi]

The big thing that us savers dont want is the Euro with its low interest rates.With the pound I am still getting 7%on my investments ,which I would not get with the Euro !

Can you explaine how the difference of currency effect how much you get interest?

[DonJippo]

With the pound I am still getting 7%on my investments ,which I would not get with the Euro !

What's the interest rate if you loan money from the bank?

[driveace]

Yes If I am to invest Euro or US Dollers I can ONLY get 2.5 or 3 % interest,as a pensioner I need a good rate to live on ,So with the GB pound I can get 7% on.

[Rollo]

The problem with this is that:
A - this assumes that this is status quo
When for the past 29 years the £stg was always stronger than the ECU and then the €.

B - that the EU is going to last for a considerable time
Personally I doubt it will exist as it does today in 2020.

and most importantly:
C - that the UK should want to voluntarily prop up the currency of Europe.

The main problem with point C is that Europe by virtue of it being a conglomerate currency base, has parts of it which to be perfectly frank are hatboxes at best. By joining the common currency, the bigger nations are in effect subsidising the others and whilst that may be charitable it's economically draining and has been a source of resentment for Germany and France in particular.

The main reason for the EU's existance is as far as I'm concerned primarily to stop wars. The Eurozone has it's origins in Paris in 1951 and then the EEC in 1957; considering that Europe had just fought the bloodiest war on its soil (heck we're even still arguing about this in another thread), then this is not surprising.

There are other questions of jingoism, national sovereignty, as well as monetary policy and while the first two are minor, the third is a very big question indeed. Personally, I think that the UK joining the common currency is excellent for Europe, but for the UK itself it is utter stupidity. If it's such a good idea why didn't the government do it 9 years ago?

[Tomi]

Yes If I am to invest Euro or US Dollers I can ONLY get 2.5 or 3 % interest,as a pensioner I need a good rate to live on ,So with the GB pound I can get 7% on.

So if i change my euros to pounds i would get 7% interest in uk? From uk bank, not Island bank?

[driveace]

Well put Rollo !
The British public do not want the Euro,and with lots of poor country,s joining the EU they will be a drain on the richer ones
If there were to be a vote in the UK I think 70% would be against joining the Euro

[Rollo]

Another Question:
What happens with regards the Scottish Banks which currently have the right to issue currency?

A - Would they forced to buy back all outstanding currencies?
In which case, would the corresponding drop in liquidity of the Scottish Banks render the Scottish banking system a hatbox?

B - Since monetary policy would have to be established in Scotland - who then becomes the bank of reserve in Scotland?
Because there's no way in Hades given what caused the financial crisis that the EU would ever let a publicly listed company become the national reserve of one of the common currencies member countries.

[Tomi]

I dont belive there is any reasonable reasons why not to join, more like emotional reasons, same like if they would ask if you want to change your flag or something simular. But I agree that any country that dont fulfill the requiments should not be let to join.

[Rollo]

I dont belive there is any reasonable reasons why not to join, more like emotional reasons,

The emotional reasons are the least important. At the end of the day no-one actually gives a rip as to what their money is called, so long as they have lots of it. Is there a single European lamenting the loss of their old currency? No.

However, the economic drain is very very real; some countries have already expressed a desire to pull out.

[Daniel]

Well they were saying on the news that the bad exchange rate is good news for exports from the UK and it will actually help the economy.

I too think part of the problem is the incessant media coverage of the credit crunch.

[Mark]

Yes If I am to invest Euro or US Dollers I can ONLY get 2.5 or 3 % interest,as a pensioner I need a good rate to live on ,So with the GB pound I can get 7% on.

Not for much longer. When whatever deal you have comes to an end that will drop like a stone. UK interest rates are now lower than the Eurozone interest rates.

[Tomi]

Not for much longer. When whatever deal you have comes to an end that will drop like a stone. UK interest rates are now lower than the Eurozone interest rates.

Thats true, and else also the money market is nowdays global that makes the interests about same everywhere, if some bank promises bigger its because they for some reason dont get cheap money, and the reason for that is lack of trust from other banks, and they have to get the money from somewhere else, and to get they have to promise bigger interests.

[Drew]

Well, with things going the way they are at the minute, it's going to make sod all difference. £1 = €1.11 with my bank treating it as £1=€1 i'm soon going to go bankrupt! :\

Plus it'd probably be the best time to join, as price changes wouldn't be much of an issue as it'd just be a case of switching money and signs. I can't imagine it being at all a popular idea though :)

[Daniel]

Well, with things going the way they are at the minute, it's going to make sod all difference. £1 = €1.11 with my bank treating it as £1=€1 i'm soon going to go bankrupt! :\

Plus it'd probably be the best time to join, as price changes wouldn't be much of an issue as it'd just be a case of switching money and signs. I can't imagine it being at all a popular idea though :)
What bank are you with?!?!?!?!?!?!?!?!? IIRC Nationwide don't charge any fees or take a cut for withdrawls overseas :)

[GridGirl]

Well if we did swap to the Euro then I'm pretty sure the price of everthing will also go up as was seen in Ireland thus further fueling inflation.

Stop talking about interest rates and exchange rates, your all making me remember lots of boring things about interest rate parity theory which could do with being pointed out on this thread. :p

[jim mcglinchey]

In Ireland the nearest city north of the border to Dublin is Newry, and they are going to have an absolute spend fest this weekend with shoppers up from the south spending their euros. They probably cant believe their luck. I hear you cant move in the place.

[Drew]

What bank are you with?!?!?!?!?!?!?!?!? IIRC Nationwide don't charge any fees or take a cut for withdrawls overseas :)

HSBC for the moment, I tried to set up Nationwide but everything arrived after I left!