The United Kingdom did not seek to adopt the euro as its official currency for the duration of its membership of the European Union (EU), and secured an opt-out at the euro's creation via the Maastricht Treaty in 1992, wherein the Bank of England would only be a member of the European System of Central Banks.
United Kingdom opinion polls showed that the majority of British people were against adopting the euro; and in a June 2016 referendum, the United Kingdom voted to withdraw from the EU, significantly reducing any chance of future adoption. On 31 January 2020, the United Kingdom left the EU.
Despite never being a member of the eurozone, the euro is used in Akrotiri and Dhekelia, and widely accepted in Gibraltar and Northern Ireland. Furthermore, during its membership in the EU, London was home to the majority of the euro's clearing houses.
History Convergences and criteria
The United Kingdom joined the European Exchange Rate Mechanism (ERM), a prerequisite for adopting the euro, in October 1990. The UK spent over £6 billion trying to keep its currency, the pound sterling, within the narrow limits prescribed by ERM, but was forced to exit the programme within two years after the pound sterling came under major pressure from currency speculators. The ensuing crash of 16 September 1992 was subsequently dubbed "Black Wednesday." During the negotiations of the Maastricht Treaty of 1992, the UK secured an opt-out from adopting the euro.
The government of Prime Minister Tony Blair declared that "five economic tests" must be passed before the government could recommend the UK joining the euro and promised to hold a referendum on membership if those five economic tests were met. Her Majesty's Treasury first assessed five economic tests 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. Another assessment was published on 9 June 2003 by Gordon Brown, when he was Chancellor of the Exchequer. Though maintaining the government's positive view on the euro, the report opposed membership because four out of the five tests were not passed. However, the 2003 document also noted the considerable progress of the UK towards satisfying the five tests since 1997, and the desirability of making policy decisions to adapt the UK economy to better satisfy the tests in future. It cited considerable long-term benefits to be gained from eventual, prudently conducted Economic and Monetary Union (EMU) membership.
The UK would also have to meet the EU's economic convergence criteria (Maastricht criteria) before being allowed to adopt the euro; at that time the UK's annual government deficit to the gross domestic product (GDP) was above the defined threshold. The government committed itself to a triple-approval procedure before joining the eurozone, involving approval by the Cabinet, Parliament, and the electorate in a referendum.
Rule out Brown, Blair's successor, ruled out membership in 2007, saying that the decision not to join had been correct for Britain and for Europe. In December 2008, José Barroso, the President of the European Commission, told French radio that some British politicians were considering the move because of the effects of the 2008 financial crisis.EUobserver - Britain closer to euro, Barroso says Brown denied that there was any change in official policy.AFP - In February 2009, Monetary Policy Affairs Commissioner Joaquín Almunia said "the chance that the British pound sterling will join: high."
The UK released new coin designs in 2008 following the Royal Mint's biggest redesign of the national currency since decimalisation in 1971. German news magazine Der Spiegel saw this as an indication that the country has no intention of switching to the euro within the foreseeable future.
In the UK general election 2010, the Liberal Democrats increased their share of the vote, but lost seats. One of their aims was to see the UK rejoining ERM II and eventually joining the euro, but when a coalition was formed between the Liberal Democrats and the Conservatives, the Liberal Democrats agreed that the UK would not join the euro during this term of government.
Withdrawal Following the election of a majority-Conservatives government in the subsequent election, a referendum on EU membership itself was held, and the result was in favour of leaving the EU. Since the UK has withdrawn from the EU, euro adoption is practically impossible. Even if government and/or public opinion were to change, the EU's position is that third countries would only adopt the euro through membership of the EU.
Usage
Akrotiri and Dhekelia The Sovereign Base Areas of Akrotiri and Dhekelia on the island of Cyprus introduced the euro at the same time as the Republic of Cyprus, on 1 January 2008. Previously, they used the Cypriot Pound. Since the independence of Cyprus, treaties dictate that British territories in Cyprus will have the same currency as the Republic of Cyprus. These are the only places under British control where the euro is legal tender. They do not issue separate euro coins. Following the British vote to withdraw from the EU in June 2016, Ioannis Kasoulidis, Foreign Minister of Cyprus, announced that Cyprus wished to have EU citizen privileges remain for these areas if the UK ceases to be a member.
Gibraltar The currency of Gibraltar is the Gibraltar pound, issued by His Majesty's Government of Gibraltar. Unofficially, most retail outlets in Gibraltar also accept the euro, though some payphones and the Royal Gibraltar Post Office, along with all other government offices, do not.Noble, John; Forsyth, Susan; Hardy, Paula; Hannigan, Des (2005). Andalucía. Lonely Planet. p. 221. .
Clearing London is home to three-quarters of all euro clearing in the world, to a value of €927 billion (2017 figure). The second largest hub is Paris, which operates 11% of clearing. In light of the UK's withdrawal from the EU, the EU is looking at whether these operations should be forced to move from London to within the EU so the activities could be regulated by the European Central Bank. The European Union agreed to prolong until 30 June 2025 permission for Britain's clearing houses to continue serving customers in the EU but officials say that this will be the "final extension". A further extension was granted in January 2025, with a new deadline set for June 2028.
Exchange rate In June 2003, Brown stated that the best exchange rate for the UK to join the euro would be around 73 pence per euro. On 26 May 2003, the euro had reached 72.1 pence, a value not exceeded until 21 December 2007. During the final months of 2008, the pound declined in value dramatically against the euro. The euro rose above 80 pence and peaked at 97.855 pence on 29 December 2008. This compares with its value between March and October 2008, when the value of the euro was about 78 pence, and its value of about 70 pence between April 2003 and August 2007. With the impact of the 2008 financial crisis on the British economy, including failing banks and plunging UK property values, some British analysts stated that adopting the euro was far preferable to any other possible solutions for Britain's economic problems. There was some media discussion about the possibility of adopting the euro. On 29 December 2008, the BBC reported that the euro had reached roughly 97.7 pence, due to poorer economic forecasts. This report stated that many analysts believed that parity with the euro was only a matter of time.
At that time, some shops in Northern Ireland accepted the euro at parity, causing a large influx of shoppers from across the Irish border. This made some shops the most successful in their company for several weeks.Seeking bargains across borders, BBC News 14 October 2008. Retrieved 6 January 2009.'Euro tourists' crossing border, BBC News 22 December 2008. Retrieved 6 January 2009. Alex Salmond, the then First Minister of Scotland, called for more Scottish businesses to accept the euro to encourage tourism from the eurozone, noting that this is already done by organisations such as Historic Scotland.Salmond in call for euro rethink, BBC News 4 January 2009. Retrieved 6 January 2009.
During 2009, the value of the euro against the pound fluctuated between 96.1 pence on 2 January and 84.255 pence on 22 June. In 2010, the value of the euro against the pound fluctuated between 91.140 pence on 10 March and 81.040 pence on 29 June. On 31 December 2010, the euro closed at 86.075 pence. A report in Britain's Daily Telegraph argued that the high euro had caused problems in the eurozone outside Germany.
There was a fairly steady decline in the euro rate during 2013, 2014 and 2015 from 85 pence to 70 pence. During 2016, the pound declined against several currencies, meaning the euro rose, especially on 24 June 2016 (because of the EU referendum) when the euro rose from 76 pence to 82 pence and further the following days.
Considerations on membership
While the UK remained an EU member, its membership in the eurozone was only possible if it decided to drop its opt-out. Over the years, considerations on the impact of membership weighed heavily.
Economics Some believed that removing the UK's ability to set its own interest rates would have detrimental effects on its economy. One argument was that currency flexibility is a vital tool and that the sharp devaluation of sterling in 2008 was just what Britain needed to rebalance its economy. Another objection is that many continental European governments have large unfunded pension liabilities. Opponents feared that if Britain adopted the euro, these liabilities could put a debt burden on the British taxpayer, though others have dismissed this argument as spurious. One of the underlying issues that stand in the way of monetary union is the structural difference between the UK housing market and those of many continental European countries.MacLennan, D., Muellbauer, J. and Stephens, M. (1998), 'Asymmetries in housing and financial market institutions and EMU', Oxford Review of Economic Policy, 14/3, pp. 54–80
The entry of the UK into the eurozone would have likely resulted in increased trade with the other members of the eurozone. It could also have had a stabilising effect on the stock market prices in the UK. A simulation of the entry in 1999 indicated that it would have had an overall positive, though small, long-term effect on the UK's GDP if the entry had been made with the rate of exchange of the pound to the euro at that time. With a lower rate of exchange, the entry would have had more clearly a positive effect on the UK's GDP. A 2009 study about the effect of an entry in the coming years claimed that the effect would likely be positive, improving the stability for the UK economy. NBER Working Paper No. w14894.
An interesting parallel can be seen in the 19th century discussions concerning the possibility of the UK joining the Latin Monetary Union.
Public opinion
The wording of the question may have varied, but the figures showed that a majority of British people have been consistently against adopting the euro. Date YES NO Unsure Number of participants Held by Ref November 2000 18% 71% N/A N/A BBC January 2002 31% 56% N/A N/A BBC 9–10 June 2003 33% 61% 7% 1852 YouGov 10–15 February 2005 26% 57% 16% 2103 Ipsos MORI 11–12 December 2008 24% 59% 17% 2098 YouGov 19–21 December 2008 23% 71% 6% 1000 ICM 6–9 January 2009 24% 64% 12% 2157 YouGov 17–18 April 2010 21% 65% 14% 1433 YouGov 2–4 July 2011 8% 81% 11% 2002 Angus Reid 9–12 August 2011 9% 85% 6% 2700 YouGov 10 August 2012 6% 81% 13% 2004 Angus Reid4-20 February 202011% 64%18%1578YouGov
Public support for the euro in the United Kingdom according to Eurobarometer polls
Sterling zone