Outside the European Economic and Monetary Union: Consequences for the United Kingdom

Publication Type:

Journal Article


Connections: The Quarterly Journal, Volume 7, Issue 1, p.120-140 (2008)


EMU, Euro, Financial Center, Monetary Policy, Mortgage Market, Sovereignty, United Kingdom


The consequences of staying outside the European Economic and Monetary Union can be divided into three categories: political, economic, and social. For the United Kingdom, most attention has been concentrated on the issue of economic gains and losses. The potential gains include a possibility for the British government to conduct its own national economic and monetary policy, the elimination of socalled social dumping, preserving the British mortgage and housing markets, and promoting London as a worldwide financial center. Moreover, approving the Euro could enlarge British foreign trade and enhance inflows of foreign direct investment. On the other hand, the negative economic consequences focus on lack of transparency of prices, no elimination of transaction costs, and the risk of disrupting the exchange rate of the pound sterling. The political and social consequences of staying outside the Euro zone must also be taken into account when analyzing the British case. Without participating in the common currency, the United Kingdom could preserve her national sovereignty and independence, although this remains questionable in the current world, which is characterized by high levels of interdependence. Likewise, the British stand to lose their influence in the European Union and in the world by not participating in the third stage of the EMU.