The EU Flashcards
What is the European Central Bank?
Responsible for the monetary system of EU+€ currency, working with other national banks of each of EU’s 28 members.
Implications of the European Central Bank (ECB) setting UK monetary policy?
- Labour markets= BoE considers impact of interest rates on employment, ECB may not give the same consideration
- Price sensitivity= some countries may be more effected by interest rate change than others
- Deflation= ECB target rate of 2% inflation, possibly too low? Cause unemployment?
What is a customs union?
=agreement between 2 or more (usually neighbouring) countries to remove trade barriers+eliminate customs duty on mutual trade.
- common external trade imposed from non-member countries
- does not allow free movement of capital+labour
What is the single European market? (SEM)
=Internal EU market that seeks to guarantee the free movement of goods, capital, services+people within the 28 members
- increase competition
- increase specialisation
- larger economies of scale
Benefits of a SEM?
- trade creation= (elimination of trade barriers when join a CU) increase in consumer surplus+econ welfare
- economies of scale from specialisation
- greater competition= lowers prices?
Costs of SEM?
- structural change due to specialisation
- regional multiplier effects
- development of oligopoly/monopoly power
- trade diversion= as a result of joining CU, countries have to buy goods at a higher price due to common external tariff
What is the economic and monetary union? (EMU)
=group of policies aimed at converging the economies of all member states of the EU
What is the single European currency?
Euro used by the 18 Eurozone states
What is the optimal currency area?
A geographical region in which it would maximise economic efficiency to share a single currency
Benefits of the EU?
- peace amongst nations
- economic development of countries like Portugal+Spain
- free trade+removal of tariff barriers
- environmental treaties
- free movement of labour+capital= more flexible economy
- 28 members are among the highest HDI
Criticism of the EU?
- common agricultural policy (CAP)= agricultural subsidies, 39% of total EU budget in 2013
- regulated labour markets
- anti inflation bias
- € has created lower econ growth
Joining the EU (convergence) criteria? (3)
- inflation= not exceed by more than 1.5% of 3 lowest countries
- gov finances= deficit no more than 3% GDP
- gross gov debt= not exceed 60% of GDP
Benefits of €?
Gains for consumers=
•lower prices due to increased competition+greater price transparency
•reduction in transaction costs of travelling within Europe
•easier to live+work in EU countries
Gains for businesses= •invoicing done with 1 currency •lower transaction costs •tourist industry •fund capital investment at lower IR
Problems of €?
- menu costs+installations of new payment systems
- customer confusion (imperfect info)
- higher prices
- lose exchange rate adjustment
- must meet EU Growth+Fiscal stability pact
Benefits of an enlargement of the EU?
- enhance security+peace among countries
- boost economic growth
- create more jobs
- higher econ welfare as countries protect eachother
- cultural diversity
- strengthen EU’s role in World affairs
Examples= Poland, Turkey+Cyprus
