UNIT 6 - THE €URO

A lot of the issues of exchange rates within Europe have disappeared with the Single Currency. On January 1 2002 16 countries adopted the Euro instead of their old currency. The UK and Denmark stayed out for the time being. The advantages of the single currency are:

Worries about changing exchange rates disappear
Businesses trading and holiday makers do not have the expense and inconvenience of changing money
It is much easier to compare prices across Europe if everyone has the same currency

Some people in the UK are opposed to us ever joining and giving up sterling because of the following concerns:

Our government will lose the power to decide its own interest rates which are the ‘price of money’. These will be decided by a Central European Bank
Our prices may rise if we join when the value of the Euro is falling
We may become too ‘tied in’ with the rest of Europe and lose some of our independence as a nation state

The Government is still deciding when, and whether, to hold a REFERENDUM (a vote of all the people) as to our joining the Euro. Some businesses have said that they will be less likely to invest in this country and trade with it if we do not join.

BALANCE OF TRADE

This shows whether the country is gaining money or losing it by trading. When we EXPORT – sell goods abroad – we gain money. When we IMPORT – buy goods from abroad – we lose money.

For example

Exports	Imports	Surplus / Deficit
£100 million	£90 million	£10 million surplus (selling more than buying)
£100 million	£120 million	£20 million deficit (buying more than selling)

BALANCE OF PAYMENTS

This includes the Balance of Trade but adds the export and import of services – banking, insurance etc.

A surplus of £10 million from the Balance of Trade and a deficit of £7 million on services would lead to a:

SURPLUS ON THE BALANCE OF PAYMENTS OF £3 MILLION

PRACTICE EXERCISE

A country exports goods to the value of £20 million and services to the value of £15 million. It imports goods to the value of £25 million and imports services to the value of £35 million. What is:

Its Balance of Trade – surplus or deficit and by how much
Its Balance of Payments – surplus or deficit and by how much.

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