Position of the UK 

Most people think of sterling when they think of the exchange rate exposure involved in Ireland joining the single currency, and it is therefore appropriate to say something about the position of the United Kingdom in relation to EMU.  In a speech made in July 1997 the UK Chancellor of the Exchequer specified five economic tests of the UK's suitability for EMU membership. The five economic tests are:  

Are business cycles and economic structures compatible, so that the UK and others could live comfortably with euro interest rates on a permanent basis?  

If problems emerge, is there sufficient flexibility to deal with them?  

Would joining EMU create better conditions for firms making long-term decisions to invest in Britain?  

What impact would entry into EMU have on the competitive position of the UK's financial services industry, particularly the City's wholesale markets?  

In summary, will joining EMU promote higher growth, stability and a lasting increase in jobs?  

In his Statement on EMU to the House of Commons on 27 October 1997, the Chancellor assessed these five economic tests. His analysis was based on a UK Treasury paper published on that date. This concluded that a successful EMU would bring benefits for the UK economy by securing macroeconomic stability and underpinning a well-functioning single market. This in turn would be good for investment, growth and employment in the UK economy. However, reflecting the cyclical divergences between the UK and Continental European economies at this time, the Chancellor concluded that it would not be right for the UK to join EMU from the outset.  

On 23 February 1999 the UK Prime Minister, in a statement to the House of Commons, launched an Outline National Changeover Plan. In his statement he indicated that Britain's intention is that it should join a successful single currency provided the five economic conditions are met. The UK Changeover Plan outlines where preparations stand on the practical aspects of possible UK entry to the single currency. It summarises issues identified, conclusions reached and work done by the private and public sectors. 

The plan is not specific on when Britain would adopt the euro. However, it sets out a broad indication of the time needed for the various steps that would be involved in the transition from sterling to the euro. The Plan indicates that making a decision to join the single currency during the present Parliament is not realistic but that, should the economic tests be met, this could be decided early in the next UK Parliament. 

The Plan states that there will be further consultation with business and the wider public sector on a timetable so that a further Plan can be produced in about a year's time.