I. Identification

1. The Issue  

    January 1, 2002 was a historic date in European history.  Twelve European Union (EU) countries started using the euro, a single currency which many believe will further unite the continent and make life easier overall (especially when traveling and doing business in the twelve participating nations).  However, not every country in the EU or for that matter the European continent joined the euro.  Britain, a member of the EU, did not sign on and still is unsure whether or not it will give up the pound for the currency many experts believe will surpass the dollar in importance in the next decade or two.  EU members Denmark and Sweden decided to hold off on the euro too.  Nearly two-thirds of the British population is against joining the euro, yet many believe it is only a matter of time before they are part of the so called “euro-zone.”  Many British people feel close to their pound and believe giving it up will be similar to giving up their sovereignty.  Others argue that joining the euro will cost far too much (one estimate-8 billion pounds) and hurt the British economy, which happens to be the strongest in Europe.  This case study will explore the cultural and social implications of euro membership within the British public and government.

2. Description

The Euro in Europe

  The euro is still in its infancy in Europe, but Europeans are slowly adapting to the new currency in their every day life. Eleanor Flegg, an Irish mother of two who works as in editor in Dublin is afraid of making big purchases until she has more time getting use to the new currency. Many like her feel the same way and rumors about shop owners increasing their prices before the January 1 changeover are abundant. Flegg for example was shopping for a set of knives in Leitrim, in northwest Ireland shortly after January 1 when she came across a knife set that cost 7 Irish pounds or 14 euro. According to Flegg, "I definitely knew that wasn't the right rate of exchange, and it turns out the man who runs the shop doesn't have a clue about money!"  Thus, as time passes, shop owners are having to learn more about the currency to ensure they are not overcharging their customers.

  Bruno Milano, a French banker believes everything went well at his Paris bank (CCF) the first couple of weeks into the euro changeover. He noted that all atm machines at CCF banks had switched to distributing euros in the first hours of January 1, 2002. One of the reasons everything is going well at his bank is because he hired three additional staff to "deal with the arrival of the euro." Thousands of temporary staff have been hired at banks across Europe to make sure the brand new euro notes (billions of them) do not slow things down for banks and their customers. Banks across Europe are also responsible for transferring customers' transactions from their national currencies to the euro. Everything from credit cards to bank accounts had to be switched over and for the most part, this process was a success.

 The tourist industry in Europe slowed down the first few weeks after the euro transition due to the terrorist attacks of September 11.  To make matters worse, there was a shortage of euro change throughout Europe. In Italy, many retailers were distributing Italian lira to tourists, meaning they had to return home with a currency that would no longer be accepted in the country after February 28. Italy also experienced delays in transferring the new euro notes into atm machines. Getting use to the new coins has been difficult too, and, according to Tito Mauro, an Italian tour guide, "I find the number of coins-eight-compared to the previous four-a nuisance and the smaller ones are quite hard to read."

  In Germany, 48% of Germans wish they could bring back their beloved deutschmark according to a poll conducted on more than 1,000 residents two months after the introduction of the euro. The German mark was a currency that symbolized stability and economic strength, before January 1, 2002. European nations tried to copy the mark and many believe the euro itself closely resembles the German mark.  Germans are obviously sad to see their currency go and many are staying away from shopping according to the German Retailers' Association, who reported a sharp fall in sales from last year.  

The Government

  British citizens have time to sort out their fears relating to the euro, but that time is running out because the government is already conducting tests to see if the euro will work for Britain.  There are five economic tests the government is currently studying. They include whether or not there is sustainable convergence between Britain and the economies of a single currency. Secondly, whether there is sufficient flexibility to cope with economic change, thirdly, the effect on investment. The last two look at the impact on the British financial services industry, and whether joining the euro would be "good" for employment. After the tests are conducted, the government will either recommend joining the currency or explain why Britain should keep out of it. If the government recommends joining the euro, it will then be up to the voting public. However, there has been much dispute among those in power in Britain. The Chancellor of the Exchequer, Gordon Brown, who is known to be a euro-skeptic heads up the government tests and will ultimately decide whether or not to recommend the currency.  On the other hand, Prime Minister Tony Blair is in favor of the currency.  Thus, the question of whether or not Britain will join the single currency encompasses many difficult questions which government officials must sort out.

The Public

    As far as the public is concerned, it appears that most are against joining the euro.  Many people believe the euro will weaken London as one of the biggest financial centers in the world.  Another strong argument against joining is that it will damage the sovereignty of the United Kingdom.  British euro-skeptics believe that if Britain were to join the euro, they would in turn be relinquishing the control that their own government has on economic and monetary matters.  These matters would be dealt with collectively by every member of the euro zone at the European Central Bank in Frankfurt, Germany, whose job is to set monetary policy.  The British Parliament would no longer control money matters and would have a lesser say in taxation, public spending and regulation if they were to embrace the new currency.  According to the British Euro Know website, “...Parliamentary control has been central to our democracy.”  Many Brits feel their pound is an important part of their culture that has historical value attached to it.  A British author, Nicholas Mayhew, summed up the historical importance of the British pound (sterling), when he wrote, “Sterling, like the English landscape, has evolved over the centuries, reflecting and sometimes leading to changes in the nation’s history, and also generating a sense of unchanging stability of fundamental importance to the national psyche.”  Others fear that if Britain joins the euro they will lose their independence and become more like a state of the European Union.  A popular slogan in Britain is “Yes to Europe, but no to the euro.”

 

How Workers feel

    British workers experienced an unstable decade in terms of job security during the 1990’s and talk of joining the euro makes many British workers nervous because they fear they will lose their jobs if the euro takes over in Britain.  During the 1990's many British workers who had steady jobs experienced negative changes to these jobs. According to John Edmonds, a Brit writing an article in the book titled The Impact of the Euro, full-time workers were asked to cut back to part-time in order to "combat global competition." Today according to Edmonds, “People at work want to feel firm ground beneath their feet again.”  Most trade unionists in Britain believe the euro will take away jobs rather than create new ones, but no one will know for sure unless the currency is implemented.  Edmonds believes that trade unions and British workers may in fact be better represented if they join the euro.  Since Britain joined the European Union, Edmonds thinks union workers are consulted more than before (in Westminster), when according to Edmonds “we were abused.”  Thus, joining the euro may allow for better representation of union workers in Britain. 

 

Job losses?    

     On the down side, many believe thousands of jobs would be lost if the UK joins the euro zone.  The Times of London noted on January 21, 2002 that more than 150,000 jobs would be lost in the UK during the first three years of the currency in Britain.  This would be due partly to the fact that the pound is far stronger than the euro. Britain’s unemployment rate would also be higher than the rest of Europe if the new currency is embraced and British exports and output would take a hit too. A weakening of their currency would make exports cheaper and imports more expensive, helping the UK trade balance but hurting the average person's purchasing power. A report produced by British conservative William Hague outlined how trade is currently successful in Britain with the pound and noted that Britain has many trading partners outside Europe-including the US, as well as Latin American and Pacific Rim countries.

 

Where the issue stands today

   Despite much opposition within Britain, many British companies including Marks & Spencer and Virgin are already allowing their customers to use the euro.  According to Simon Buckby, the campaign director for Britain in Europe, “Although Britain is not yet in the euro, the euro is already here in Britain.”  Those in favor of joining the euro note that staying out will weaken ties with Europe and point to the importance of international cooperation.  Some in the business field believe that joining would end exchange rate risk and help sustain stability.  Whatever the argument is, Britain

has many opposing viewpoints which relate to cultural and trade issues (among many others)

 

Economic impacts of joining the euro according to Richard Layard, British economist

Positive                                                    

1. Lower interest rates-because of lower inflation                              

2. No cost of changing currencies-A German tourist visiting Britain would not have to spend money changing their currency at banks that charge fees 3. Better market access-companies will be able to set up in Britain with fewer obstacles

4. Less uncertainty about exchange rates

5. Lower average inflation-The European Central Bank in Frankfurt will "acquire a strong dose of anti-inflationary culture that is commonplace in Germany

  Negative

  1. Less ability to offset local shocks to real demand-If the demand for British products falls, Britain will be hurt more than other Euro countries

 2. Possible deflationary bias at the beginning-British products could be hurt while they are attempting to adjust to new euro climate
3. Related Cases

1. Borders by Nicholas E. Standlick   Borders discusses how the Canadian government has tried to limit foreign influence within Canada. Companies such as Barnes and Noble and Borders books have been banned from the country under recent Canadian legislation.

2. Dollar by Suzannah Wimberly   This study looks at how Latin American and Caribbean countries are dealing with the cultural implications of adapting the American dollar for their currency. Ecuador is one such country that is giving into the new economic climate and taking part in this "dollarization" process.

3. Mexfin by David Field   Mexfin explores how Mexico's government is dealing with public concern over environmental problems within Mexico. The case study also explains how the environmental problems will enable many different parts of the Mexican economy to become involved with various environmental projects.

4. Author and Date:

Jeffrey Orschel

June 2002

II. Legal Clusters

5. Discourse and Status: Disagreement and in progress. Whether or not Britain joins the Euro will be up to the voting public, if in fact the government recommends the currency. Then, if the public votes in favor of the euro, the British Parliament will make it law.

6. Forum and Scope:  EU and Multilateral

7. Decision Breadth: 15 member countries, in particular Great Britain (population 60 million)

8. Legal Standing:   Treaty; British Parliament makes the final decision

III. Geographic Clusters

9. Geographic Locations

a. Geographic Domain: Europe

b. Geographic Site: Western Europe                                                 

c. Geographic Impact: Great Britain

10. Sub-National Factors: No  

11. Type of Habitat: Temperate

IV. Trade Clusters

12. Type of Measure: Many

  Britain will decide whether or not to join the euro once the government’s five economic tests are passed.  Then, British citizens will vote in a referendum for the currency and, if it passes the referendum, the Parliament will declare the euro the new currency in the UK.

13. Direct v. Indirect: Indirectly: By not joining the euro, Britain will be able to keep control of its financial matters.  However, by doing this they may be passing up an opportunity to join the rest of the European community (by not adopting the euro) in what could become a very strong currency in the global markets.

14. Relation of Trade Measure to Environmental Impact

a. Directly Related to Product: No

b. Indirectly Related to Product: Yes, euro

c. Not Related to Product: No

d. Related to Process: No

15. Trade Product Identification:   Product Type:  many

16. Economic Data: 

 

                             One British pound or sterling=1.63 euros (January 2002 data)

  Ideal conversion rate is 80 pence=1 euro

 

                 

  According to Peter Spencer, a British economic analyst, if Britain joined the eurozone at a conversion rate above 1.50 euros, there would be a serious loss of manufacturing competiveness. Additionally, because the British economy runs at two speeds according to Spencer, a high conversion rate would “freeze over the split in the economy.”  Thus, a conversion rate whereby 80 pence equals1 euro would ensure that British companies remain competitive.

 

The following is a list of the 12 eurozone members whose currencies are “fixed” to the euro:

1 euro=1.96 Deutschmarks                     1 euro=200 Portuguese escudos

1 euro=40 Belgian francs                        1 euro=6.55 French francs

1 euro=40 Luxembourg francs                1 euro=0.78 Irish punts

1 euro=2.2 Dutch guilders                      1 euro= 5.95 Finnish markka

1 euro=1936.27 Italian lira                     1 euro=340 Greek drachmas

1 euro=166 Spanish pesetas                  1 euro=17 Austrian schillings

17. Impact of Trade Restriction:  None

18. Industry Sector:  Financial

19. Exporters and Importers: European Union and many

V. Environment Clusters

20. Environmental Problem Type:  N/A

21. Name, Type, and Diversity of Species N/A

22. Resource Impact and Effect: None

23. Urgency and Lifetime: N/A

24. Substitutes: None

VI. Other Factors

25. Culture:  Yes

      Britain has a long and proud history in many different contexts, including the fact that the British monarchy has been in power for thousands of years. Pictures of the Queen today still appear on British coins and bills, and the recent death of Queen Elizabeth's mother displayed how the monarchy is close to the heart of average British citizens. People waited for over five hours in the rain to view her casket.

    

   The first sterling penny was most likely produced when William the Conqueror ruled around 1080.  From there, it survived dozens of war including the two great world wars (WWI, WWII).  Today it is highly respected in the international markets and is a strong currency overall.  According to numerous polls, the majority of Britons prefer to keep their currency than adopt the euro because it is a vital part of their culture.  Just like the dollar is extremely important to American culture, the pound is a very important part of British culture. The dollar in the United States helps maintain the individual character of our nation. We use it to buy things and teach our children about the presidents on the bills. The same thing is true in Britain. People use it to buy a tube (subway) card to get to work and view the pictures on the bills as a reminder of the history of the monarchy. It is an essential part of their identity. Identity helps formulate who people are and sets them apart from other people. For example, Britons do not like to refer to themselves as Europeans and enjoy being on an island of their own where they can have their own identity. Thus, making the change from the pound to the euro will hurt British identity and make Britons feel "less British."

 

      The Wheeler family from Britain is a good example of how the pound is ingrained in British culture. John and Rosalind Wheeler live with their four children in a two-bedroom house where they pay 65 pounds a month while earning 17,500 pounds per year. Although they are not at the top of the income bracket, they share many of the same feelings about the euro as other Brits. John, the father stated, "I think there is a danger we will end up as part of a Euro superstate and we'll be bottom of the pile - we always are." When filling out forms that ask whether or not he is a European, John writes in British because he sees himself as a British citizen, not part of Europe. His wife, Rosalind feels the same way and believes the pound is an important symbol for Britain. It is also a proud symbol for Britain, a country that is not literally attached to the rest of Europe, and in many ways does not want to be. According to Rosalind, 31, "The pound symbolizes Britain and the Queen and we want to keep it." Rosalind, like many other Europeans has grandfathers who fought in both world wars and she knows they would be very against the British adoption of the euro.

26. Trans-Boundary Issues: Yes

27. Rights: None

28. Relevant Literature:

1.  Baimbridge, M., & Burkitt, B., & Whyman, P. (Eds.). (2000)  The Impact of the Euro.  New York:  St. Martin’s Press.

2.  Hundley, Tom.  “You bet your bottom euro, unity is distant.”  Chicago Tribune.  January 20, 2002.

3. Mayhew, Nicholas. (1999).  Sterling:  The History of a Currency.  New York:  John Wiley & Sons, Inc.

4.  Temperton, Paul. (2001).  The UK and the Euro.  New York:  Wiley, John & Sons, Inc.

5.  BBC News Special on the UK and the Euro:  http://news.bbc.co.uk/hi/english/in_depth/uk/2001/uk_and_the_euro/

Image References:

1. The CIA World Factbook 2001

2. BBC News "Euro Cash."

                         

1/2001