From an economic point of view, Great Britain's accession to the European Monetary Union is neither a great risk for the country itself nor for the current members of EMU. This conclusion was reached by the DIW Berlin in its current weekly report 13/2002 - 14/2002. However, the most difficult problem would be to fix an adequate exchange rate for the pound, which was neither a burden to Great Britain nor the European Economic Union. At the current exchange rate of between 1,60 euro and 1,65 euro, the DIW Berlin is of the opinion that the pound should be devalued by up to 20%, in order to strengthen Britain's competitiveness. In all other areas, Great Britain has already begun to converge towards Europe.
Great Britain has already fulfilled the main criteria set out in the Maastricht Treaty - and has done so in an exemplary manner when compared to the other large economies in the EU. With a financial balance of + 1.3% in 2000 and a debt ratio of 4.9% in 2001, Great Britain performed better than all the large and most of the small EMU countries. Its inflation rate of 1.2% was also at the lower end of the scale for European countries. Furthermore, the long term interest rate (2001:4,9%) will also not present a problem; it has remained close to the EMU average for the past few years. However, the last of the criteria is not met by Great Britain; its exchange rate would have to be pegged to the Euro for at least two years. Due to the deficit in the British foreign trade balance, the pound's exchange rate is considered to be inflated and thus a marked devaluation of the pound is probable in the short or long run.
A national referendum will ultimately decide whether Great Britain will join the monetary and economic union. However, before such a referendum is held, Britain first has to determine whether accession to the EMU is in the national economic interest. To this end, the British government has developed five rather general assessment criteria. The first criteria, which is decisive for the remaining four, requires the UK's economic cycles to be compatible with those of the EMU. The DIW Berlin has proved that the British economic cycle has converged towards that of the Eurozone. Yet British monetary and tax policy seems to react in a much more flexible way to economic fluctuations.