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The five economic tests are the criteria defined by the United Kingdom Government that are to be used to assess the UK's readiness to join the Eurozone and adopt the euro as its currency. In principle, these tests will be distinct from any political decision to join. The Eurozone (also called Euro Area, Eurosystem or Euroland) is the subset of European Union member states which have adopted the euro, creating a currency union. ...
The euro (plural euro--but note linguistic issues concerning the euro, symbol: €; banking code: EUR) is the official currency of the European Union and single currency for over 300 million Europeans in the following twelve European Union member states: Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands...
Politics is the process and method of decision-making for groups of human beings. ...
- Are business cycles and economic structures compatible with European interest rates on a permanent basis?
- If problems emerge, is there sufficient flexibility to deal with them?
- Would joining the euro create better conditions for firms making long-term decisions to invest in Britain?
- What impact would entry into the euro have on the UK's financial services industry?
- Would joining the euro promote higher growth, stability and a lasting increase in jobs?
The business cycle or economic cycle refers to the ups and downs seen somewhat simultaneously in most parts of an economy. ...
The Eurozone (also called Euro Area, Eurosystem or Euroland) is the subset of European Union member states which have adopted the euro, creating a currency union. ...
An interest rate is the rental price of money. ...
History of the tests
The five tests were designed in 1997 by British Labour Party Chancellor Gordon Brown and his assistant Ed Balls, allegedly in the back of a taxi while Brown was in the United States. Despite this uncertain pedigree, the IMF deemed them to be "broadly consistent with the economic considerations that are relevant for assessing entry into a monetary union"[1]. 1997 (MCMXCVII) was a common year starting on Wednesday of the Gregorian calendar. ...
The Labour Party is a centre-left or social democratic political party in Britain (see British politics), and one of the United Kingdoms three main political parties. ...
The Rt. ...
James Gordon Brown, Ph. ...
Edward Michael Balls (born February 25, 1967, Norwich, Norfolk) is a Labour and Co-operative Member of Parliament. ...
The flag of the International Monetary Fund (IMF) The International Monetary Fund (IMF) is the international organization entrusted with overseeing the global financial system by monitoring foreign exchange rates and balance of payments, as well as offering technical and financial assistance when asked. ...
The UK Treasury is responsible for assessing the tests. It first did so in October 1997, when it was decided that the UK economy was neither sufficiently converged with that of the rest of the EU, nor sufficiently flexible, to justify a recommendation of membership at that time. The government pledged to reassess the tests early in the next Parliament (which began in June 2001), and published a revised assessment of the five tests in June 2003. This assessment was much weightier (at least literally) than its predecessor, running to around 250 pages and backed up by eighteen supporting studies, on subjects such as housing, labour market flexibility, and the euro area's monetary and fiscal frameworks. The new eastern entrance to HM Treasury HM Treasury (Her/His Majestys Treasury) is the United Kingdom government department responsible for and putting into effect the UK Governments financial and economic policy. ...
The conclusions, though, were broadly the same; the Treasury argued that
- There had been significant progress on convergence since 1997, but there remained some significant structural differences, such as in the housing market.
- While UK flexibility had improved, they could not be confident that it is sufficient.
- Euro membership would increase investment, but only if convergence and flexibility were sufficient.
- The City would benefit from Eurozone membership.
- Growth, stability and employment would increase as a result of euro membership, but, again, only if convergence and flexibility were sufficient.
On the basis of this assessment, the government effectively ruled out UK membership of the euro for the duration of the 2001 Parliament. Since Labour has been re-elected in 2005, it may reassess the tests once more, though the debate on the European Constitution has recently upstaged that on the euro. The Treaty establishing a Constitution for Europe, commonly referred to as the European Constitution, is an international treaty intended to create a constitution for the European Union. ...
Significance The tests are significant in the recent history of UK government for two principal reasons. First, they are a sign of the rise of economic analysis in policymaking. Previous decisions to join exchange rate regimes, such as the Bretton Woods system, did not appear to be preceded, either internally or externally, by such comprehensive assessments. In effect, the five economic tests seem to give the government's economists, particularly in the Treasury, a veto on UK membership of the euro. The size of the 2003 assessment, and the extent of consultations with prominent academic economists such as Barry Eichengreen and Robert Mundell, is probably unprecedented as an economic analysis published by a national government. Second, the publication of the assessments of the tests can be seen as part of the trend towards (at least superficial) greater openness on the part of government. Of course, sceptics will argue that the real motives and debates are not necessarily reflected in published material. Wikipedia does not have an article with this exact name. ...
Robert Alexander Mundell (born October 24, 1932) is a Canadian economist who graduated from the University of British Columbia in Vancouver. ...
External links - Britain in Europe
- Guardian - Special Reports - British business, taking sides
- HM Treasury - The UK government's policy on Economic and Monetary Union (EMU)
- BBC summary of the tests
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