Essay Plans

Should Britain join the EMS?

SYNOPSIS:

A strong candidate for the 'A' levels examination. Topics on the EMS often appear in newspapers so it is vital to keep up to date with current modes of thought.

POINTS:

  1. Define the EMS and briefly sketch its history (founded in 1979 by Germany and France etc.

  2. Explain its workings : members agree to fix their exchange rates to others in the EEC within a band reflecting world and EEC trade patterns.

  3. Seen as a forerunner to European Monetary Union and a common currency.

  4. Alleged benefits include:

    • stabilising investments
    • creates certainty
    • encourages trade

  5. Arguments AGAINST floating exchange rates (in particular speculation) would largely be resolved by joining the EMS.

  6. A common currency would guarantee a stable income to farmers under CAP.

  7. A common currency could relieve the dollar as a source of international liquidity.

  8. It would remove the need to support the pound if under speculative pressure as there would be supportive currency action by other members of the EEC.

  9. Monetarists believe joining the EMS would lead to tight financial and monetary discipline as we would have to match the German inflation this would improve competitiveness and eventually reduce interest rates.

  10. But ... if sterling is overvalued when we join then it would be constantly overvalued (hindering exports). Inflation (ie Keeping the £ stable) would replace other targets (eg. Unemployment) thus economic policy would be dictated by external bodies (similar to the IMF in the 1960's). If the exchange rate is fixed improvement in efficiency (comparative costs) would not be reflected. Also the fixed exchange rate of the 1960's did not stop the speculative outflow of hot money.

  11. There are also the mid-way school - join ... but not yet ... If we join before North Sea Oil runs out the £ is overvalued; Professor Walters (adviser to Mrs Thatcher) argues that if we use interest rates to stabilise exchange rates then the performance of member states diverges.

  12. Staying outside contradicts the spirit of EEC membership.

  13. Finally, the reserve role of sterling may cause problems : greater fluctuations in the pound have been caused by the volume of sterling owned overseas and the attractiveness of London as a 'hot money centre' than in other exchange rates. Thus greater pressure on UK to deflate.
©2005 Oxford School of Learning Ltd. 66 Sunderland Ave, Oxford OX2 8DU. Tel: 01865 512428
Company Registered in England No. 02031252
email us | Our Privacy Policy | Accessibility Policy |
Approved by the ATW
Web Design by Bat Design