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• Wherehaveyouheardtheword“union”?• Whatorganizations,people,countries,etc.youassociatethewordwith?
WhatistheEuropeanUnion?
• TheEuropeanUnionisauniqueeconomicandpoliticalpartnership between27Europeancountries.
WhyWastheEuropeanUnionCreated?
• TheEUwascreatedintheaftermathofWWII.Thefirststepsweretofoster economiccooperation:countriesthattrade withoneanotherareeconomicallyinterdependentandwillthusavoidconflict.
• Throughaseriesoftradeandpoliticalagreementsfrom1951– 1993,aEuropeanCommunity(EC)wascreated.– Focusedoneconomicandpoliticalcooperationamongthecountries.
WhyWastheEuropeanUnionCreated?
• In1993,theMaastrichtTreatywassigned,replacingtheECwiththeEU.
• MaastrichtTreatyestablished:– CommonForeignandSecurityPolicy– Coordinatedpolicyonasylum,immigration,drugs,andterrorism
– EUcitizenship,whichallowedpeopletotravelfreelythroughouttheEU
– Establishedatimetableforaneconomicandmonetaryunion.
– Specifiedtheeconomicandbudgetarycriteriawhichwoulddeterminewhencountrieswerereadytojoin
EuropeanUnionSymbols• Thestarssymbolize:
– unity– solidarity– harmonyamongthe
peoplesofEurope.
• Thenumberofstarshasnothingtodowiththenumberofmembercountries,thoughthecircleisasymbolofunity.
EuropeanUnionSymbols
“Unitedindiversity”- EUMotto
ItsignifieshowEuropeanshavecometogether,intheformoftheEU,toworkforpeaceandprosperity,whileatthesametimebeingenrichedbythecontinent'smanydifferent
cultures,traditionsandlanguages.
PoliticalComponentoftheEU• Whatbeganasapurelyeconomicunionhasevolvedinto
anorganizationspanningallareas,from development aidto environmentalpolicy.
• TheEUactivelypromotes humanrightsanddemocracy andhasthemostambitiousemissionreductiontargetsfor fightingclimatechange intheworld.
• Thankstothe abolitionofbordercontrols betweenEUcountries,itisnowpossibleforpeopletotravelfreelywithinmostoftheEU.IthasalsobecomemucheasiertoliveandworkinanotherEUcountry.
HowAreDecisionsMade?
• Codecision.– ThedirectlyelectedEuropeanParliamenthastoapproveEUlegislationtogetherwiththeCouncil(thegovernmentsofthe27EUcountries).
• BeforeaCommissionproposesnewlaws,itassessesthepotentialimpact,listingtheadvantagesanddisadvantagestothepolicy.– Solicitawiderangeofinput:experts,citizens,businesses,etc.
HowAreDecisionsMade?• TheEuropeanParliamentandtheCouncilreviewproposalsbytheCommissionandproposeamendments.
• IftheCouncilandtheParliamentcannotagreeuponamendments,asecondreadingtakesplace.
• Inthesecondreading,theParliamentandCouncilcanagainproposeamendments.ParliamenthasthepowertoblocktheproposedlegislationifitcannotagreewiththeCouncil.
HowAreDecisionsMade?
• Ifthetwoinstitutionsagreeonamendments,theproposedlegislationcanbeadopted.
• Iftheycannotagree,a conciliationcommittee triestofindasolution.
• BoththeCouncilandtheParliamentcanblockthelegislativeproposalatthisfinalreading.
WhatistheEuropeanMonetaryUnion?
• The EconomicandMonetaryUnion involvesthecoordinationofeconomicandfiscalpolicies,acommonmonetarypolicy andtheeuroasthecommoncurrency.– Eurozone– EMU
• Theeurowaslaunchedon1January1999asavirtualcurrencyforcash-lesspaymentsandaccountingpurposes.
• Banknotesandcoins wereintroducedon1January2002.
WhatistheEuropeanMonetaryUnion?
• Austria• Belgium• Cyprus• Estonia• Finland• France• Germany
• Greece• Ireland• Italy• Luxembourg• Malta• theNetherlands
• Portugal• Slovakia• Slovenia• Spain
17of27EUcountriesarepartoftheEurozone
Whyasinglecurrency?
• Asinglecurrencyoffersmanyadvantages:– eliminatingfluctuatingexchangeratesandexchangecosts.
– Becauseitiseasierforcompaniestoconductcross-bordertradeandtheeconomyismorestable,theeconomygrowsandconsumershavemorechoice.
– encouragespeopletotravelandshopinothercountries.
– Atgloballevel,theeurogivestheEUmoreclout,asitisthesecondmostimportantinternationalcurrencyaftertheUSdollar.
WhyaSingleCurrency?
• Asinglecurrencyalsoallowscountrieswithsmallereconomicstoborrowmoremoney.– Thiscanhelpleadtomoreeconomicgrowth.– Butborrowingtoomuch,canleaddefault,ortheinabilitytopaybackwhatyouhaveborrowed.
Whatarethedisadvantagestoasinglecurrency?
• Joiningamonetaryunioncanleadtothefollowing:• Monetarypolicy notsuitedtotheindividualcounty’sneeds.• Larger economicfluctuations.• Budgetdeficits• Inabilitytodevaluecurrency
– Therearetwoimplicationsforacurrencydevaluation. First,devaluationmakesacountry'sexportsrelativelylessexpensiveforforeignersandsecond,itmakesforeignproductsrelativelymoreexpensivefordomesticconsumers,discouragingimports.
• Possiblemoralhazard inthelegislationandexecutionofgovernmentbudgets.– Meaning,governmentscouldborrowrecklesslyandknowthatsomeone
willbailthemout.
• Coststhatarenotnecessarilyeconomicinclude• Lossofsomecountryidentityandculture.• Forexample,youcannolongerputthepictureofyourheroesonyourcurrency.
WhatisMonetaryPolicy?
• Theterm"monetarypolicy"referstowhatacentralbank,doestoinfluencetheamountofmoneyandcreditintheeconomy.
• Whathappenstomoneyandcreditaffectsinterestrates(thecostofcredit)andtheperformanceoftheeconomy.
Whatisinflation?
• Inflationisasustainedincreaseinthegenerallevelofprices,whichisequivalenttoadeclineinthe value orpurchasingpowerofmoney.
• Ifthesupplyofmoneyandcreditincreasestoorapidlyovertime,theresultcouldbeinflation.– Asageneralrule,ifaCentralBankprintstoomuchmoney,inflationgoesupbecausethemoneyisworthless.
WhoManagesMonetaryPolicy?• Theindependent EuropeanCentralBank isinchargeofmonetaryissues.
– Itsmaingoalistomaintainpricestability orkeepinginflationlow.
– TheECBalsosetsanumberof keyinterestrates fortheeuroarea.Theseratesdeterminehowmuchyoupaywhenyouborrowmoney.
• TaxesarestillleviedbyEUcountriesandeachcountrydecidesuponitsownfiscalpolicy.
WhatisFiscalPolicy?
• Theusebyagovernmentofitstaxing andspendingpowertoinfluenceeconomicactivity.
• IntheEU,theEuropeanCentralBankisresponsibleformonetarypolicy.Whileeachindividualgovernmentisresponsibleforitsownfiscalpolicy
WhatistheEurozoneCrisis?
• WhencountrieswithweakereconomiesjoinedtheEuro,theywereallowedtoborrowmoremoneybecausetheywereviewedasasafeborrower.
• Unfortunately,duetopoorgovernmentplanning,countriesborrowedlargesumsofmoneytopayforvariousprojectsandservicesandaccumulatedhugedebts.
WhatistheEurozoneCrisis?
• Afterthe2008USfinancialcrisis,theworldexperiencedaneconomicslowdown.
• Thisslowdownforcedgovernmentstorundeficitstocontinuetooperateandprovideservices.
• In2009,itbecameclearthatGreecehadtoomuchdebtandwouldbeunabletorepayit.
WhatistheEurozoneCrisis?• IfGreecedefaulted,orfailedtopaybacktheirdebts,itwouldaffecttheentireEurozone.
• AllthecountriesusingtheEurowouldbeviewedasacreditrisk,andbanksandothercountrieswouldnotlendmoneytotheEurozone.
• ThiswouldshutdownalltheEurozoneeconomiesbecausecountries,businesses,andpeopleneedtoborrowmoneytooperate.
WhatistheEurozoneCrisis?
• AsaresultofGreece’sproblems,thecrisishasspreadtotheotherPIIGScountriesandtheyhaveseentheirdeficitsriseanddebtswell.– Portugal,Ireland,Italy,Greece,Spain.– ConsideredtheweakerEuropeaneconomies
• GermanyandFrancestillhavestableeconomies,butiftheEurozonecollapses,theireconomies,willsufferbecausemanyoftheirbanksholdthedebtsofthePIIGSnations.
WhatistheEurozoneCrisis?• TwomajorsolutionstotheEurozoneCrisis:
1. Germanycouldbailouttheweakereconomies,buttheyarereluctanttobecauseofmoralhazard andbecausetheyfeelitwillpunishGermanyforthepoordecisionsmadebyothernations.
2. TheEuropeanCentralBankcanactasthelenderoflastresortandbailoutthebanksbyprintingmoremoneyandgivingittocountriestopayofftheirdebts.• ThisiswastheUSFederalReservedidin2008topreventthecollapseoftheUSbankingsystem.Thisiswhatthe“bailouts”referto.
WhatistheEurozoneCrisis?
• Thehistoricalreasonsfornotwantingtobailoutnationshastodowithinflation.
• WeimarGermanyexperiencedmassiveinflationafterWorldWarI.Itwassobadthatthepriceofbreadwouldrisethousandsofdollarsinaday.
• ManyhistorianscountGermany’seconomicwoesasareasonforHitler’srisetopower.
WhatistheEurozoneCrisis?
• TheECBisafraidthatbygivingmoneytotheindebtedcountries,theywillcauseinflationtoskyrocket– whichiscountertotheirstatedmissionofkeepinginflationlow.
• Whatshouldbedone?
TwoViewsAbouttheCrisis
PaulKrugman• NobelPrizewinning
economist• Liberalopinionwriterfor
theNewYorkTimes.
DavidBrooks• Respectedpoliticalpundit
andbestsellingauthor• Conservativeopinionwriter
fortheNewYorkTimes.
Sources
• http://www.unc.edu/depts/europe/euroeconomics/
• http://www.unc.edu/depts/europe/conferences/eu/netscape5.htm
• http://europa.eu/index_en.htm