The Euro was launched on 1 January 1999 as an electronic currency and became used as legal currency on 1 January 2002 in twelve of the fifteen European Union countries. These twelve countries have become part of the Eurozone which consists of Germany, France, Italy, Spain, Portugal, Belgium, Luxembourg, the Netherlands, Austria, Finland, Greece and Ireland, each of these countries in the Eurozone replaced their old national currencies with the Euro. The three remaining EU countries who decided not to enter the Euro are Denmark, Sweden and Britain, these countries have chosen to keep their old currencies. The main economic idea behind the EMU is the desire to facilitate trade between the EU countries by eliminating uncertainties about exchange rates and cutting out currency exchange costs has been one motivation. Another factor has been the belief that increased integration between the economies of the EU countries will create better conditions for achieving shared objectives such as a strong growth rate and high level of employment.
As I have already stated the UK is one of three EU members who has not yet joined the Euro. Of these three Denmark had a referendum in 2000 as to whether they should join the Euro at its introduction in January 2002 to which the answer was no'. Sweden is expected to vote no' at its impending plebiscite and Britain is still waiting to set a date for an expected referendum. Britain's current stance is that they are waiting for Gordon Brown's infamous Five Tests' to be met. Therefore, if we are to decide whether the UK should join the Euro these tests must be looked at in detail.
The tests are Convergence, Flexibility, Investment, The Financial Sector and The Overall Benefit for the UK. Briefly convergence asks are British business cycles and economic structures similar enough to those of the Eurozone nations so that the UK could adjust to having its interest rates set by the European Central Bank rather than the Bank of England without the UK losing out? Flexibility asks if the UK labour market's flexibility (and other areas of the economy) is great enough to be able to cope with shocks to the economy without huge government intervention.