Denseman on the Rattis

Formerly known as the Widmann Blog


The pound is not welcome

Although all EU members are welcome to adopt the euro, there are some criteria that need to be fulfilled before joining:

  • Inflation rate: No more than 1.5 percentage points higher than the three lowest inflation member states of the EU.
  • Annual government deficit: The ratio of the annual government deficit to gross domestic product (GDP) must not exceed 3% at the end of the preceding fiscal year.
  • Government debt: The ratio of gross government debt to GDP must not exceed 60% at the end of the preceding fiscal year. Even if the target cannot be achieved due to the specific conditions, the ratio must have sufficiently diminished and must be approaching the reference value at a satisfactory pace.
  • Exchange rate: Applicant countries should have joined the exchange-rate mechanism (ERM-II) for 2 consecutive years and should not have devaluated its currency during the period.
  • Long-term interest rates: The nominal long-term interest rate must not be more than two percentage points higher than in the three lowest inflation member states.

tasty money
Originally uploaded by oskay

The criteria were bent a bit when the euro was created, but recently they have been applied rigorously.

The UK used to meet the criteria, except for the one about the ERM-II.

However, the inflation is far too high, and the deficit is far too big, and soon the debt will exceed the 60% limit, too.

So the result is that the UK cannot join the euro.

Of course things can change, but it’s definitely not going to be an easy goal to achieve.

The government needs to do more to meet the convergence criteria, otherwise they can’t join when they want to.

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