How Britain Avoided the Euro Crisis - dummies

By Julian Knight

In 2005, the British announced that they were not planning to enter into the Euro at that time. This followed months of heated debate in the British Parliament over whether Britain should join or not.

It was widely believed that then Prime Minister Tony Blair wanted Britain to join the Eurozone, but his Chancellor, Gordon Brown, objected so strongly that the idea was eventually shelved. As of this writing, it appears that Gordon was right — if Britain had joined the Euro, it may now be in the emergency ward along with Portugal, Ireland, Greece, and Spain. This is because

  • Britain is currently heavily in debt, as taxes collected are running far short of expenditure.

  • Britain would not be able to devalue its currency — making its exports cheaper to overseas buyers — a key weapon to boost economic growth when recession hits.

Government debt is often referred to as a current account. If expenditure exceeds tax revenue and debt is accruing (very common), then it is said to be in deficit; if taxes collected exceed expenditure, the current account is said to be in surplus. In the last thirty years, Britain has been in surplus on only three occasions — the rest of the time debt has been building up.

There would have been several benefits if Britain had joined the Euro — as well as potential drawbacks. Chief among the benefits, it would have saved businesses and individuals time (and money) exchanging their Pounds Sterling for Euros.