In the context of benefits for Switzerland, I have already discussed why the argument that EMU membership would induce the Swiss political authorities to embark upon a necessary and otherwise impossible economic reform program should be dismissed. For the United Kingdom, the economic cost-benefit assessment of EMU membership is a different one. Analogous to the Swiss case, the UK would lose monetary policy as a flexible instrument to respond to asymmetric domestic shocks such as the current steep rise in domestic house prices (Chart 6). However, unlike Switzerland, the UK would gain from lower interest rates. In this context, it must be remembered that the Bank of England’s post-monetary independence highly successful monetary policy under an inflation targeting regime follows a long period of stop-and-go monetary policy and relatively high inflation (Chart 7). The argument that EMU would somehow induce further structural reforms is equally irrelevant for the UK as it is for Switzerland though partly for different reasons. As I outlined earlier, initiated by the economic shock experience of the late 1970s, the United Kingdom has independently and autonomously embarked upon a long-standing and far-reaching economic liberalization course. The current nature of the relative business cycles between the UK and the Euro-zone points to higher economic costs of UK membership in EMU than for continental European countries. This is illustrated by the different interest rates settings of the ECB and the Bank of England in recent times.
3  Because Swiss GDP statistics do not fully take into account the improvement of the terms of trade regularly realized by the tradable sector, the growth differential between Switzerland and other advanced economies is overstated but remains significant nevertheless. See e.g., Term-of-Trade Changes and Real GDP: Evidence from Switzerland, Ulrich Kohli, SNB Quarterly Bulletin, June 2002. BIS Review 24/2004  3  Monetary policy and EMU Accession to a monetary union transfers the power over monetary policy from the national to the union level. There are costs and benefits to such an abdication of monetary sovereignty. Nominal interest rates are equalized throughout a monetary union and the nominal exchange rate is no longer available as a tool for alleviating the impact of asymmetric shocks. Necessary economic adjustments between different countries of a monetary union must therefore occur through various price and factor movements. As I have already suggested, imposing real wage adjustments in particular can be politically costly. In the case of both the UK and Switzerland, these potential costs of EMU membership are mitigated by virtue of flexible labor markets in both countries. In the case of Switzerland, EMU accession would also lead to the loss of an interest rate bonus our country has traditionally enjoyed. At least partly, this bonus is rooted in the credibility of the Swiss National Bank, acquired over a long period of independent and successful monetary policy (Chart 2).