Eurozone Flashcards
What was the Treaty of Rome?
Created the European Economic Community, which became the European Union.
What was the EMS?
A number of European nations allowed for floating exchange rates, but within a range.
When was the Euro created?
1999
What is the “single mandate” of the European Central Bank, as opposed to the Fed’s dual mandate?
The ECB aims to curb inflation, whereas the Fed wants to monitor inflation and unemployment.
What did it mean for Europe to not be an optimal currency area?
They did not have a very mobile population to move around and bring all wages back to equilibrium, therefore the wages in one country could be higher relative to those in another country.
What happened to wages in Greece?
Wages kept increasing in Greece, and they should have been decreased, but laborers were obviously resistant to this.
What was the government of Greece required to do because of their state status?
Increase government spending to counteract the economic contractions.
What happened to the bond status of Greece?
It became junk bond status.
What did the ECB and IMF do to help Greece?
Loaned 110 billion euros to help sovereign debt. After the second package, 240 billion euros. Greece took loans on condition of austerity (decrease in government spending and increase in taxes).
What is austerity?
Funding a government deficit by increasing taxation and decreasing spending.
What was the downside of the single mandate?
There is no central authority to counterbalance fiscal contraction of member states.
