Emu Study Ser.

This publication is part of a set of 18 documents which have been prepared by H.M. Treasury to inform the assessment of the Government's five economic tests for Economic and Monetary Union (EMU) entry into the euro area. The third of the tests relates to whether joining the single currency would create better conditions for firms making long term investment decisions in the UK. To inform this assessment, this study considers the potential impact of EMU on the cost of capital for UK firms, an important aspect of a company's decision whether to invest or not. Overall, the study finds little scope for UK credit risk-free rates to fall significantly were the UK to enter the euro zone.