Euro

Question 1

Benefits of the monetary union

• stability

Answer 1

Monetary stability: countries can no longer engage in competitive

Question 2

Benefits of the monetary union

• Price transparency

Answer 2

Greater price transparency, promoting competition and reducing the cost of living

Question 3

Benefits of the monetary union

• Convenience

Answer 3

Greater convenience for travellers and reduced transaction costs for both tourist and businesses as a result of not having to change currencies

Question 4

Benefits of the monetary union

• Strengthening business

Answer 4

The strengthening of European businesses which, having to compete in a single currency area, have become more robust competitors on the world stage

Question 5

What is the benefit of the Growth and Stability Pact

Answer 5

it discourages governments from destabilising the Eurozone by borrowing money to win elections and instead encourage them to think about long-term stability

Question 6

Eurozone need to keep their annual budget deficit

Answer 6

All countries in the Eurozone should aim to keep their annual budget deficit below 3% of GDP, and keep total public debt below 60% of GDP.

Question 7

The Commission’s power in breaking the rules in the SGP

Answer 7

The Commission could impose a fine of up to 0.5% of GDP if a country broke the rules in three consecutive years.

Question 8

Examples of breaches of the SGP

Answer 8

France and Germany broke the rules in 2003.

Greece was told to cut its public spending and raise taxes in order to repay its debt.

Question 9

Disadvantage of the SGP

Answer 9

2. New rules do not take account of the flexibility governments need occasionally to balance their budgets across the economic cycle

Question 10

Ireland bailout in 2010

Answer 10

An €85 billion bailout package was agreed for Ireland in 2010

Question 11

What is the European Stability Mechanism

Answer 11

It is the eurozone’s permanent bailout fund for struggling economies like Greece. Aimed to defend against a deepening debt crisis. Financed by all 19 member states

Question 12

What does the European Stability Mechanism provide?

Answer 12

It provides financial assistance in the form of loans, to Eurozone countries or as new capital to banks in difficulty.

Question 13

The UK’s role in bailouts

Answer 13

The UK contributed to the bailouts of Ireland and Portugal, and
has a bilateral contribution in the case of the Republic of Ireland.

Question 14

Arguments for fiscal union

• joined-up management

Answer 14

A European fiscal union, with proper institution would be able to provide joined-up management of the EU economy as a whole

Question 15

Arguments for fiscal union

• Central tax

Answer 15

Central tax resources and mutualised debt would become powerful symbols of a united Europe

Question 16

Arguments for fiscal union

• credibility

Answer 16

Fiscal union would raise Europe’s market credibility

Question 17

Arguments for fiscal union

• Debt crisis

Answer 17

The European debt crisis proves that monetary union cannot work without fiscal union

Question 18

Arguments against fiscal union

• Lack flexibility

Answer 18

Governments need flexibility to deal with their own problems

Question 19

Arguments against fiscal union

• sovereignty

Answer 19

Setting budgets is a core responsibility of sovereign parliaments (democratic deficit

Question 20

What does not using the euro mean for the UK

• Budget deficit

Answer 20

The UK is allowed to run a much higher budget deficit than other member states, as it is not subject to the stability and Growth Pact, which caps public deficits at 3% of GDP

Question 21

Decisions made by the ECB

Answer 21

The UK is unbound by decisions made by the European Bank or the European System of Central Banks