Euro, Rebate and EU budget

Question 1

What was the Maastricht Treaty of 1992?

Answer 1

The Maastricht Treaty (1992) was a major agreement that created the European Union (EU) and laid the groundwork for the euro currency. It was signed by 12 European countries and officially came into force in 1993.

Question 2

Name some key things the Maastricht Treaty established

Answer 2

1. EU: It established the EU, replacing the EEC
2. 3 Pillars: Introduced European Community, Common Foreign and Security Policy and Justice & Home affairs
3. Euro: Launched in 1999
   4: Expanded EU cooperation

Question 3

What were some key decisions made by the John Major government about the Maastricht treaty?

Answer 3

No euro – The UK decided not to adopt the euro currency.

No Social Chapter – The UK refused EU rules on workers’ rights to keep more control over its economy.

Question 4

Why was the Maastricht Treaty controversial in the UK?

Answer 4

The Maastricht Treaty was controversial because it significantly deepened European integration, creating the European Union (EU) and paving the way for the euro. Many in the UK feared it weakened national sovereignty, especially with new rules on monetary policy, citizenship, and foreign affairs.

The ratification process was long and difficult, requiring 70 votes and 61 debates in Parliament. It only passed because the government made it a confidence vote, meaning rejecting it could have triggered a government collapse.

The debates foreshadowed Brexit, as they highlighted deep divisions within both major parties and the failure of Eurosceptics to form a united front against the EU.

Question 5

Margaret Thatcher negotiated the ‘UK rebate’ in 1984 at the Fontainebleau Summit. What does the ‘UK rebate’ aim to do?

Answer 5

It aimed to reduce the UK’s contributions to the EU budget, addressing concerns that the UK was paying disproportionately more than it received, particularly due to its limited benefits from the Common Agricultural Policy (CAP).

Question 6

What was the impact of Brexit on the UK rebate?

Answer 6

Brexit eliminated the rebate, impacting both the UK (losing the financial benefit) and the EU (redistributing costs among member states).

Question 7

How many countries are in the eurozone?

Answer 7

20: Austria, Belgium, Croatia, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia, and Spain.

Question 8

Explain the ‘Swedish exception’ to the eurozone

Answer 8

Sweden should adopt the euro (per its 1995 EU agreement).

A 2003 referendum rejected the euro (56.1% voted “no”).

Sweden avoids the euro by staying out of the European Exchange Rate Mechanism (ERM II).

Question 9

Which two countries opted out of the Euro?

Answer 9

Joining the euro is now a condition to joining the union, when the economic requirements are met. However, two older member states secured opt-outs:

1. The UK
2. Denmark

Question 10

What is the European Monetary System (EMS) 1979?

Answer 10

The European Monetary System (EMS) was created in 1979 to stabilize exchange rates and encourage economic cooperation among European countries.

This established an exchange rate mechanism (ERM) to keep currencies stable within a 2.25% range.

Question 12

Why did Britain exit the Exchange Rate Mechanism (ERM) in September 1992?

Answer 12

Britain left the Exchange Rate Mechanism (ERM) on September 16, 1992 (known as Black Wednesday) because it couldn’t keep the pound’s value stable

The government tried to keep the pound within the ERM’s fixed limits, but heavy market pressure and speculation forced it to drop out. Investors, led by figures like George Soros, bet against the pound, making it impossible to maintain its value despite high interest rates and government intervention.

Question 13

In 2003, the UK considered adopting the euro. What tests were done to decide if the UK was ready to do so?

Answer 13

The five economic tests were used by the UK in 2003 to decide whether to adopt the euro:

1. Economic alignment with the Eurozone.
2. Ability to manage economic shocks.
3. Impact on investment.
4. Effect on trade and jobs.
5. Control over economic policies.

The UK decided not to adopt the euro after failing to meet these tests.

Question 14

What was the effect of Brexit on the Pound?

Answer 14

Brexit had a major impact on the British pound, causing significant devaluation

Before the Referendum (2016): The pound weakened due to uncertainty about Brexit.

June 2016 (Referendum Result): The pound dropped 10-12%, reaching a 30-year low against the dollar and euro.

2016-2017: The pound stayed weak at around $1.20, as concerns about economic stability grew.

2017-2019: The pound fluctuated between $1.20 and $1.35, reacting to Brexit negotiations.