Introduction
The European Economic and Monetary Union (EMU) is an integral part of the European Union (EU). As of now, following the latest enlargement in 2004, there are 25 members in the EU, with 12 of them in the EMU. The 10 new members have yet to join the EMU but have “are all committed to joining the euro once they meet the entry requirements” ; Britain and Denmark chose to stay out of the EMU with the “opt-out” option that they negotiated for at the Treaty of European Union of the Maastricht revision; Sweden, though “not been formally granted the right to remain outside EMU” , has chose not to participate in the EMU via a national referendum. 1 important point to note is that non-participation in the EMU do not always refer to total non-participation, for example, in the case of Britain which is in the 1st 2 phases of the EMU, but not yet in the last and final phase. But for the purpose of discussion, the EMU mentioned in this essay will come to mean both the EMU as a whole and also the final phase. We will, through this essay, try to investigate why these 3 countries chose to stay out of the EMU, which includes political, economic and social reasons.
The Economic and Monetary Union
A simple definition of an economic and monetary union is the highest level of economic cooperation between countries. It consist of a free trade area with common external tariffs, internal standards and movement of goods, services, finances, people as well as, most significantly, a single currency.
The idea of a European EMU was materialized in the Madrid European Council in 1989, as proposed by then European Commission President, Jacques Delors. It was a necessary step as there was increasing interdependence in the European trade with the development of a European single market. “The Delors report set out a plan to introduce the EMU in three stages and it included the creation of institutions like the European System of Central Banks (ESCB), which would become responsible for formulating and implementing monetary policy. The three stages for the implementation of the EMU were the following:
Stage One: 1st July 1990 to 31st December 1993
The Treaty of Maastricht in 1992 establishes EMU as a formal objective and sets a number of economic convergence criteria, concerning the inflation rate, public finances, interest rates and exchange rate stability. The treaty enters into force on the 1st November 1993.
Stage Two: 1st January 1994 to 31st December 1998
The European Monetary Institute is established as the forerunner of the European Central Bank, with the task of strengthening monetary cooperation between the member states and their national banks, as well as supervising ECU banknotes. In 16th December 1995, details such as the name of the new currency (the Euro) as well as the duration of the transition periods are decided. In 16-17 June 1997, the European Council decides at Amsterdam to adopt the Stability and Growth Pact, designed to ensure budgetary discipline after creation of the Euro, and a new exchange rate mechanism (ERM II) is set up to provide stability between the Euro and the national currencies of countries that won't yet have entered the Eurozone. In 1st June 1998, the European Central Bank (ECB) is created, and in 31 December 1998, the conversion rates between the 11 participating national currencies and the Euro are established.
Stage Three: 1st January 1999 and continuing
From the start of 1999, the Euro is now a real currency, and a single monetary policy is introduced under the authority of the ECB. A three year transition period begins before the introduction of actual Euro notes and coins, but legally the national currencies have already ceased to exist. The Euro notes and coins are finally introduced at January 2002.”
Why is Britain not in the EMU?
Britain is 1 of the 2 countries, beside Denmark, to have the choice of opting out of the EMU. This choice was negotiated by the Conservative Party which was in power during the signing of the Maastricht treaty. This decision to negotiate an “opt-out” option was motivated by political as well as economic concerns.
Politically speaking, Britain was always not in favour of integrating with Europe. This view was upheld since the time of former Prime Minister Winston Churchill, who in his speech at the Zurich University in 1946 called for a “United States of Europe” that “excluded Britain…and thus reflecting an ambiguity toward Europe that remains strong in Britain today” .
Secondly, as shown by a poll in a public opinion poll done by The Economist in 1999, the people of Britain do not identify with Europe as much as they do with the flag of the Union Jack. This has led to reservations by the government as to whether they should hold a national referendum to join the EMU, which greatly signifies a deeper integration with the rest of Europe.
Thirdly, Britain had join the European Union as a mean of checking Franco-German influence in Europe and using Europe as a tool to serve British interest. Further integration, especially with the presence of European instituitions such as the European Commission and the European Central Bank, there is, at present, a question over the loss of national sovereignty.
Economic-speaking, joining the EMU will mean entering into a union of common currency, fixed exchange rates and interest rates. Rates adjustments have always been a tool for fixing domestic economic problems. Exchange rates adjustment can be used for corrections of external imbalances while interest rates adjustments can be deployed to stimulate consumer spending. But with the surrender of control over rates controls, economists have pointed out that “western Europe is not yet an optimum currency area where the gains from a common currency can outweigh the losses resulting from the abandonment of the exchange rate as a policy instrument for the correction of external balances”
But Britain has expressed its desire to join the EMU. Stating economics concerns as the reasons of its reservations, it came up with a test of 5 criteria which it must pass before it will hold a referendum that will once again decide whether it will go ahead with the single currency. The 5 criteria:
1) Convergence with Eurozone
2) Enough flexibility to adapt
3) Impact on jobs
4) Impact on financial services
5) Impact on foreign investments
according to the Labour government, has not been met.
“The chancellor announced in June that the UK had yet to meet his five economic tests for joining the single currency.” -- Gordon Brown
Why is Denmark not in the EMU?
Denmark’s politics has a tradition of being highly influenced by public opinions. Over the divided issue of both joining the EU and the EMU, public opinions had held the final say.
“At the 1986 referendum about the European Single Act - which in reality became a new membership referendum - 56.2% voted in favour. The membership issue thus disappeared from the political agenda and the debate instead turned to the substance and implications of membership, primarily in the light of the so called ‘union process’. This problem was dramatically expressed in June 1992, when a tenuous majority of 50.7% rejected the Maastricht Treaty about the European Union.” Therefore, one of the key reasons that resulted in Denmark staying out of the EMU is the lack of public support. Danish opposition were in some sense similar to British opposition. Both countries were afraid of the loss of national sovereignty. The Danish currency, the Krone was “regarded as a symbol of national independence”. Joining the common currency, in that case, is seem as a more than serious blow to the danish sovereignty.
Other than sovereignty, the Danes also have another concern; the erosion of the Danish welfare system. Denmark is one of the first countries to establish a comprehensive public welfare system. “The Danish welfare model is subsidised by the state, as a result Denmark has one of the highest taxation levels in the world.” If they were to allow external influences on their economic policies, they are afraid of a possible collapse of the welfare system.
Why is Sweden not in the EMU?
Sweden, though not granted formal opt-out rights like Denmark and Britain, had stayed out of the EMU. Like Denmark, Sweden too had a national referendum that opposed to joining the EMU. “The vote against EMU in the north Sweden was extraordinarily strong. Even in Umeå, a relatively prosperous university town that voted for joining the EU in 1994, two-thirds of voters was against the euro.”
Other than a national referendum, the Swedes conducted a government report that was which focused on the political and economic aspects of EMU. The report findings are, in short, as such:
1) Economic gains of joining the EMU are small though certain
2) Economic arguments did not currently favour Swedish participation while the political arguments did.
Common grounds for the 3 countries
Though a different aspect was highlighted for each of the countries, it is important to note that all these aspects are non exclusive. The same reasons, more often than not can be applied across the board. Like Sweden, Britain and Denmark too have economic considerations regarding participation in the EMU; especially Britain, where the pound remains to this day, one of the strongest currencies in the world.
Likewise, all 3 countries are concerned with the issue of national sovereignty. This is even more so in Europe, where the idea of nationalism was conceived and where the various powers had for years enjoyed the status of imperial masters.
Conclusion
As more and more countries are included into the European Community, the adverse political repercussions as the outsiders will take its toll on the 3 countries. Increased participation in Europe will soon depend on whether a “United States of Europe” will materialise or not. If Europe were to fail eventually, then, by staying out of the EMU, Britain, Denmark and Sweden will be saved from the consequent economic crisis, or at least be less affected. However, if “Europe” were to succeed, then the delay in joining the EMU will only place them in a disadvantageous position within the European community.
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