Economics Essay 36: Advantage/Disadvantage of joining the Euro

Discuss the possible benefits and drawbacks to EU member countries of adopting the euro.

The adoption of the euro by EU member countries has both benefits and drawbacks. Let's explore them with examples:

Benefits:

1. Price stability: Countries like Germany and the Netherlands, which adopted the euro, have experienced relatively low inflation rates compared to their pre-euro periods. This has provided a stable price environment, benefiting businesses and consumers.

2. Enhanced trade and investment: For countries like Ireland and Spain, joining the eurozone has facilitated increased trade and investment. They have attracted foreign direct investment and witnessed a surge in exports, taking advantage of the seamless trade within the eurozone.

3. Increased credibility and market access: Countries such as Estonia and Slovenia, after joining the eurozone, have witnessed increased investor confidence and improved access to international capital markets. This has allowed them to borrow at lower interest rates and reduce their borrowing costs.

Drawbacks:

1. Limited flexibility during economic crises: Greece faced significant challenges during the global financial crisis, as it couldn't devalue its currency to regain competitiveness. The lack of exchange rate flexibility constrained its ability to address economic imbalances and required external assistance.

2. Asymmetric impacts during economic shocks: The sovereign debt crisis in the eurozone highlighted the challenges faced by countries like Greece, Portugal, and Spain. They experienced severe economic downturns and had limited policy options to address the crisis due to the constraints imposed by the eurozone framework.

3. Loss of seigniorage: For countries like Italy and France, joining the eurozone resulted in the loss of seigniorage revenue. They no longer had the ability to earn profits from issuing their own currency, which could have been used to fund government programs or reduce public debt.

4. Fiscal coordination challenges: The eurozone requires adherence to fiscal rules to maintain stability. Countries like Italy and Spain have faced challenges in meeting deficit and debt targets, requiring them to implement austerity measures and adjust their fiscal policies to comply with eurozone regulations.

5. Differential competitiveness: Countries with structural differences, such as Germany and Greece, face varying levels of competitiveness within the eurozone. The inability to adjust exchange rates can lead to divergent economic performance, with some countries struggling to maintain competitiveness and achieve balanced economic growth.

These examples illustrate the diverse experiences of different countries within the eurozone, reflecting both the benefits and challenges associated with adopting the euro. It is important for each country to carefully consider their specific circumstances and weigh the potential benefits against the drawbacks before making a decision to join the eurozone.

Meritocracy is a myth

James Bloodworth in The Independent

What do you want to be when you grow up? I remember a careers advisor asking me just that question shortly before my sixteenth birthday. Like most of my peers I had very little idea as to what I wanted to do with my life when the seemingly endless horizon of school came to an end. Drink beer, smoke cigarettes and chase girls was about the sum of it.

Looking back, though, the question was a strange one. We insist on asking children what they want to do with their lives when most of the time it’s set in stone when they pull on their first school uniform. If they are born poor they will almost certainly stay poor; if their parents have money then it’s likely that they will too. The more unequal a society is the truer this statement becomes. 

Yes we insist on telling children that they can be ‘whatever they want to be’, knowing full well that crushing disappointment lies further in their future. Every nation relies to some extent on fairy tales. In Britain we cling to the idea that you can be or do anything in life so long as you put your mind to it. In the process we hand our politicians the one thing they can use to justify the obscene privileges at the top and the revolting squalor at the bottom: the indomitable myth of meritocracy.

Meritocracy is what’s politely called a dead duck. A child from a ‘modest’ background can only go from rags to riches in the sense that a human being can take off if they flap their arms around wildly enough. A disadvantaged child will nearly always and everywhere become a disadvantaged adult, and if you ignore the right-wing rhetoric and look at the data you might be a little less keen on hearing the 'M' word in future.

The children of wealthier parents are more likely to go to the best schools (houses in desirable catchment areas cost on average 42 per cent more), eat the best food, have access to ‘high culture’ and have a quiet place to do homework when they get home from school. As a result, poor but bright children get overtaken by their less intelligent classmates from wealthier backgrounds in the very first years of schooling, according to a 2007 study. 

As children become teenagers these inequalities are entrenched further. Around 10 per cent of young people at the bottom rung of the social ladder go to university compared with over 80 per cent of those from professional or managerial backgrounds. A student from a private school is 55 times more likely to go to Oxford or Cambridge University than a state school student on free school meals. And as universities minister David Willetts likes to point out, graduates will earn around £100,000 more over a lifetime than non-graduates.

Thomas Piketty’s ground-breaking book Capital in the 21st Century looks at how wealth concentrates when the returns on capital are higher than economic growth. Or in plain English, how it’s easier for a person who already has lots of money to make more of it. But it isn’t only wealth that concentrates; opportunity does too. Or as Picketty’s predecessor Karl Marx put it, “men make their own history, but they do not make it as they please; they make it…under circumstances…given and transmitted from the past”.

Take a look at political life in Britain today and the truth of that statement becomes self-evident. When Margaret Thatcher came to power in 1979 around 40 per cent of Labour MPs had done some form of manual or clerical work before they entered parliament. By 2010 that figure had plummeted to just 9 per cent. The shape of the labour market undoubtedly accounts for some of the change, but the extent to which parliament is rapidly becoming the talking shop of the middle classes is evident in other ways too. An astonishing 91 per cent of the 2010 intake of MPs were university graduates and 35 per cent were privately-educated. This is a rise on previous elections and, in the case of the latter, compares to just 7 per cent of the school age population as a whole.

If nothing else, the fact that a tweed-suited former stockbroker can pose as just an ordinary bloke when contrasted with other politicians should set the alarm bells ringing. The ossification of politics is made worse by a media which increasingly resembles the establishment talking to itself.

The unpalatable truth that no politician will dare acknowledge is this: meritocracy can only exist if the rich have a little less and the poor a little more. Countless studies show that social mobility improves in more equal societies. Norway has the greatest level of social mobility, followed by Denmark, Sweden and Finland. Britain and the US are the most unequal western societies on earth in terms of income distribution and, surprise surprise, have much lower rates of social mobility than their more equal Scandinavian counterparts.

Despite the well-intentioned rhetoric of Ed Miliband, we are not ‘one nation’, and the first step in creating a genuine meritocracy would be an admission that the interests of the banker are not the same as those of the nurse or the refuse collector. While huge inequalities exist there can be no serious talk of social mobility or meritocracy, and careers advisors up and down the country will have to keep on lying to our children.

Old Conservative Values

Norman Tebbit in The Telegraph

It is all too easy for a blogger to respond a bit too much to the headlines of the day, so every now and again I think it useful to stand back and look at some long-term trends.


David Cameron used to speak about Britain's broken society, and even Ed Miliband makes socialist noises about society from time to time. The Lib Dems concede, too, that there are some deep-rooted problems facing any government which could not be solved by handing everything over to Brussels.
I know well enough that as a man of eighty years, if I say that many things were better in our society when I was young, those who never knew those years will condemn me as an addled old fool living in the past. Should I suggest that if a new way of organising things is clearly not working, and we might revert to the old way which did, some of the “all change is for the better” brigade will denounce me as a mindless reactionary incapable of progressive thought.

Yet the essence of Darwinism is not just that the new shall replace the old. The species that makes the wrong change in response to a changed environment suffers the same fate as that which does not change at all. For all that, there are a good many successful species which have scarcely changed at all for many millions of years.

In our human case the right approach must be the classical conservative approach. That is, when it is not necessary to change, it is necessary not to change. In recent years we have had too much gratuitous change, which has relentlessly divorced the consequences of actions from those actions themselves.

This has happened at all levels of human conduct.

Being fat used generally to be caused by eating too much. Nowadays obesity is generally a medical condition or an “epidemic”. Stealing from shops used to be theft. These days it is at worst shoplifting or a civil offence, or “a cry for help”. Sometimes no doubt it is a cry for help… but not all the time.

As we saw last summer, a crowd smashing into a shop, taking the stock and setting fire to the building may these days no longer be breaking and entering, conspiring to commit theft, violent disorder and arson so much as making “a political statement”.

Despite a rising level of expenditure on education we face a rising tide of illiteracy, innumeracy, and ignorance of science and history amongst school-leavers. Could it be that the cult of child-centred education is a failure? When bright pupils are held back less, the slow ones will follow – because they won't want to be left far behind. More to the point, if we're not stretching bright pupils in the classroom, they'll find some extracurricular activity (perhaps gang leadership) at which to excel anyway.

Why, we might well ask (as Duncan Smith has done), do we have these days hereditary unemployment in families where for two or three generations no one has ever been gainfully and legally employed?

Is it possible that we have constructed a world full of perverse incentives in which it is often the case that immediate gratification, even if not long-term benefit, is most easily achieved by anti-social behaviour? If so, might it not be a good idea to think about reverting to past ways of dealing with such things. After all, was a classroom in which corporal punishment was available, but in my experience seldom used, better or worse than one in which teachers may be physically attacked and teaching takes second place to just keeping a semblance of order?

Nor are such thoughts confined to the behaviour of the financially or socially disadvantaged. The excesses of bankers might have been more quickly changed for the better had rather more of them faced the criminal justice system. Nor can politicians escape their responsibility for creating a belief that the answer to the question, “should I do this?” is no more than “yes, if I can I get away with it”.

Perhaps my views are shaped not just by growing up in rather hard times, but by my profession as a pilot. We aviators learned the inexorable laws of aerodynamics and of the frequently fatal consequences of the pretence that they could be scoffed at, ignored, or changed. And we learned to pay heed to those who had survived longer than us in that unforgiving environment.

AQA - Exam board to penalise private school pupils

By Richard Garner, Education Editor in The Independent
Tuesday, 27 September 2011

A controversial plan to rank all A-level students according to the schools they attend – which would allow universities to discriminate against pupils from private schools – is unveiled today by Britain's biggest exam board.

The radical proposal would allow universities to offer places to students from disadvantaged homes who showed potential but had performed less well in exams than their peers at better schools.

The plan by the exam board AQA (Assessment and Qualifications Alliance) provoked a storm of argument among academics and independent schools. There were immediate fears that candidates will be penalised simply because they achieve good A-level results at a good school. Independent schools are also alarmed that the approach could discriminate against disadvantaged pupils to whom they have offered scholarships.
Dr Tim Hands, headmaster of Magdalen College, Oxford, and co-chairman of the Independent Schools' Universities Committee, said: "It is extraordinary. It takes no account of home background or the amount of tutoring a pupil could have."

Professor Alan Smithers, head of the Centre for Education and Employment Studies at the University of Buckingham, added: "There must be concerns about the ranking the candidates are awarded. The possibility for errors is enormous." The plan is contained in a paper prepared for discussion by Dr Neil Stringer, senior research associate at the AQA Centre for Education Research and Policy, and being circulated at the party conferences for debate this month.

It advocates the drawing up of a national system for ranking both candidates’ achievements and the educational context in which they were taught.

Pupils at weak schools would get bonus points; those at elite schools could be penalised in comparison.
Dr Stringer cites the example of St George’s Medical School in London in support of his argument. It offers places to students with lower A-level grades (BBC rather than AAB) providing that their performance is 60 per cent better than the average for their school.

“St George’s reports that students from poorly performing schools who are accepted into medical school with lower grades do just as well as their peers with higher grades,” he adds.

“This strongly suggests that students admitted through the adjusted criteria scheme learned enough at A-level and are able enough learners to compete successfully with students who achieved higher A-level grades under more favourable.”

Under the blueprint he has devised, students would be awarded an exam score based on their best three A-level grades and then placed into different performance bands. They would then be given the ranking for their school.

Dr Stringer says the system could either be offered to universities individually – or drawn up centrally by an existing agency like Ucas, which is currently reviewing its A-level system.

The AQA believes it can be an an alternative to allowing students to apply to university after they have got their results – rather than be awarded places on predicted grades. This plan, under active consideration from ministers and said by some to be fairer towards disadvantaged students, has failed so far to get off the ground largely because of opposition from universities.

Professor Smithers added: “I would hope that any university worth its salt would look at the candidates’ achievement and inform their own view as to their potential.”

Dr Hands added: “Cambridge University, which features at the top of many a global league table, has recently published research that shows prior schooling is of insignificant effect with regard to degree outcome.

“The proposer of this scheme might like to bear this in mind.”

Brian Lightman, general secretary of the Association of School and College Leaders, which represents the majority of state secondary school heads, described it as “a step too far”. He said it should not detract from the need to provide all pupils with a good education in a good school.

Lee Elliott Major, of the education charity the Sutton Trust, which campaigns to get more disadvantaged young people into leading universities, said: “We support the use of so called contextual information when judging students’ potential and achievement.”

However, he added that the “bigger challenges” were in getting “more children with the grades at school to make university a realistic prospect and encouraging pupils to actually apply when they have the grades”.
Dr Stringer stresses in his paper: “The proposed system would not encourage or require universities to relinquish control of their admissions systems. It is not an issue of allocating students to universities on the basis of their respective rankings: admissions tutors would be free to make decisions.”

The AQA said the scheme could be considered as an alternative to Post Qualification Application – allowing students to apply to university after getting their results.

That, argued Andrew Hall, chief executive of AQA, would lead to a shorter teaching year if exams were brought forward.

“We have real concerns about the effect this could have on the performance of some students,” he added.
“So our Centre for Education Research and Policy have devised a different way to tackle the issue that doesn’t disadvantage any student and allows all applicants – from whatever their school type or background – to compete fairly for university places.”

* Meanwhile, plans to mark GCSE students on their spelling and punctuation and scrap most resits were published by Ofqual, the exam standards watchdog, yesterday.

It has launched a consultation on the proposals which would see teenagers – from 2012 – having to sit all their exams in the summer at the end of two-year courses rather than sit modules throughout the course.

They would also only be allowed to resit English and maths.

The reforms were first announced by Education secretary Michael Gove earlier this summer.

How the new system would work

Under the new system, a pupil at a weak school who got a lower grade than a rival pupil at a good school could still be given more university entrance points, writes Richard Garner.

The blueprint would work like this. James goes to a low-performing comprehensive in a disadvantaged area. He manages to get an exam score of 36 out of 40. However, he is entitled to bonus points as a result of his school's low ranking (it scores minus three in the rankings).

Adam, on the other hand, goes to a top performing independent school with no pupils on free school meals and got 38 for his exams. But he faces being penalised on his school's ranking (the school is given a "plus three" ranking).

It would, of course, be up to the individual university to decide what to do with this information but one way of using it will be to add three points to James's exam score because of the background he comes from and deduct three points from Adam. On that basis, the place would go to James.

The argument in the paper is that there are still vastly more points awarded for exam performance than education context and it is unlikely that any university would be as crude as to deduct the maximum ranking points from Adam and give the maximum three extra to James.

However, what is likely is that both Adam and James would be longlisted - something that would not have happened to James without the ranking system. Then James's potential would outweigh Adam's performance.