Ten months after that would come the UK’s so-called “E-day”, held not on 1 January as at the euro’s launch but on 6 April. Two months from then the pound would cease to be legal tender.The changeover plan means that, on the most optimistic assumption of a decision being made by the Government in July next year, the euro would be legal tender in the UK by August 2006 at the earliest.After closely watching the performance of the 12 nations that joined economic and monetary union (EMU) on 1 January, 2002, the Treasury has decided that there should be only a two-month dual currency period in the UK. The Treasury has also revised the number of coins it would have to mint from between 13 and 14.5 billion to 10 billion. Two billion notes would be printed.”The Government has developed, and progressively refined, an outline timetable and the logistics that would be necessary for a changeover in the UK,” the Treasury document said. “A phased approach to a changeover would help minimise costs, operational risks and the overall length of a changeover.”By Paul Waugh. UK productivity has been held back by a legacy of long-term under-investment.

EMU entry could reduce the cost of capital for UK firms if long-term interest rates fell further inside the euro area, and if membership of a larger financial market reduced the cost of finance. Over time, EMU is likely to boost cross-border investment flows and FDI (foreign direct investment) in the euro area. There has been a fall in the UK’s share of total EU FDI flows coinciding with the start of EMU, and a corresponding increase in the share of the euro area. But against the backdrop of many other influences on FDI flows, it is difficult to say with confidence that EMU has boosted FDI within the euro area. There can, however, be confidence that a successfully operating EMU, and UK membership of it on the right basis, would boost FDI over the longer term. There is a risk that the longer membership of the euro is delayed, the longer the potential gains in terms of increased inward investment are postponed. If sustainable and durable convergence is achieved, then we can be confident the quantity and quality of investment would increase, ensuring that the investment test was met.The investment test focuses on one of the key potential benefits for the UK economy of EMU membership: higher investment.

Productivity growth is central to long-term economic performance and investment is a key driver of productivity. In or out of EMU, the Government places great importance on boosting the quantity and quality of UK investment. EMU is promoting a deeper, broader and more integrated capital market across the euro area, which could lead to a reduction in the cost of capital for euro area firms.The removal of currency transaction costs and risk through EMU entry would increase access to this capital market for UK firms, although differences in regulation and infrastructure would remain important barriers to access.The barrier to access to the EMU capital market created by currency transaction costs and risk is relatively more important for small and medium-sized enterprises than for large firms. Easier and cheaper access to euro area financing will mainly benefit those larger SMEs which currently raise funds through domestic capital markets, but are discouraged by exchange rate costs from tapping international markets.EMU will have a limited impact on smaller SMEs, which tend to raise capital through local retail banks.