It insulated the UK, to an extent, from the worst of the eurozone crises over the past decade or so, and it meant that interest rates as set by the Bank of England were more closely aligned to economic conditions in the UK. Thus, the post-crash recession of 2008 was less severe than it might have been.
Under the Maastricht Treaty of 1992, the UK and Denmark were the only EU member states relieved of the requirement to join the euro once certain economic conditions were in place, for example on government borrowing and inflation (the “convergence criteria”).
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That treaty was eventually subsumed into the Lisbon Treaty of 2007. The European Commission states: “The treaty does not specify a particular timetable for joining the euro area, but leaves it to member states to develop their own strategies for meeting the condition for euro adoption. Seven of the 13 member states who joined the EU since 2004 have already joined the euro area, most recently Lithuania on 1 January 2015.” The UK and Denmark’s “opt-outs” are still in force.
The question now arises, then, of whether this special situation would continue of the Brexit process, under article 50 of the Lisbon Treaty, were now paused or revoked (ie reversed).
The short answer to that is yes. The UK would remain, as now, a member state under existing terms. Including the euro opt-out.
However, if the UK were to formally leave the EU at any point, even under a “soft Brexit” and remaining in the European Economic Area, the single market or customs union, it would still need to reapply for membership in the usual fashion if it wanted to return. Just as, say, Albania or Serbia are now, the UK would become a “candidate” for accession.
This would require acceptance of the “acquis communautaire” – all the rules, regulations and laws of the EU as they currently stand. Any exceptions would have to be agreed by the EU.
On the euro, the UK would have lost the opt-out, and be required to fix the pound’s exchange rate irrevocably to the euro, and to transfer the running of UK monetary policy – interest rates – from the Bank of England to the European Central Bank in Frankfurt. There the Bank of England would be represented along with the other central banks.
In due course, when the convergence criteria had been met, the UK would then join the euro and abolish the pound, first in bank deposits and then in notes and coins. However, it is interesting that Sweden maintains that it is not obliged to join the euro, and would only do so after a referendum. It has been an EU member since 1994 and still uses the krona.
The UK joining the euro would be a controversial question, as it was when it was a live issue in the 1990s.
If history is any guide, and with acknowledged flaws in the eurozone’s governance, joining the euro would be a significant obstacle to the UK rejoining the EU, if the EU insisted on enforcing it. Critics would claim it would mean bailing out Greece or Italy at great costs. Supporters would point to how it would make cross-border trade and price transparency much easier.
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