bain_y_howells__monetary_economics__policy_and_its_theoretical_basis

idly across the EU in relation to GDP throughout the period 1957-1999,
before the introduction of the single currency. The evidence about the
impact of reduced uncertainty on profits and investment is also mixed.
Overall, it is extremely difficult to come to clear conclusions about
whether the loss of the exchange rate instrument in the euro area might
result in net benefits or net costs in the long run. This is likely to be the case
in any ambitious single currency project.
Pause for thought 13.3:
MONETARY POLICY IN THE EUROPEAN UNION 381
Why might a reduction in uncertainty lead to better investment decisions and an
increase in the efficiency of the market? How do market agents normally protect
themselves against uncertainty?
13.3 The UK and membership of the euro area
The above arguments have been highlighted by the debate over UK membership
of the euro area. The single currency was established in January
1999 with 11 members. Greece had applied but was excluded at that point
because it did not meet the requirements of convergence established in the
Maastricht Treaty of 1992. However, Greece became the twelfth member
of the area on 1 January 2001. This left three EU members outside of the
single currency area.
Denmark had met the convergence conditions in 1999 but had chosen
not to join following the rejection of membership in a national referendum.
The decision was confirmed in a second referendum conducted on 28
September 2000. At the second referendum, the margin was the quite large
one of 53.1 to 46.9 per cent against membership. The size of the ‘no’ majority
made it unlikely that the question would again be asked of the Danish
people in the near future, although at the beginning of 2002, opinion polls
in Denmark suggested that there was then a willingness to join. Sweden,
which joined the EU in 1995, had not become a member of the European
Monetary System and was in no hurry to join the euro area. The UK had
obtained an opt out from membership of the euro area in the Maastricht
Treaty and was also not technically eligible in 1999 because it had not been
a member of the exchange rate mechanism of the EMS when the decision
on single currency membership was made in 1998. In practice, sterling
would almost certainly have been granted membership from January 1999,
but the government chose to exercise its option to remain outside.