The Euro Flashcards
Convergence criteria
Stability and growth pact (Maastricht Treaty 1992) adopted 1997
Members facilitate and maintain stability EMU
Fiscal monitoring of members by European Commission and Council of Ministers
Fiscal criteria
National budget
Euro crisis –> differentiation
Political tool implement stability growth pact lacking
Contagion = major concern
- 1 MS defaults –> major default rest
= confidence = Domino effect
= undermine trade position of creditor states
–> dissolution of X markets and effect have on € E.R
Increased diff economic integration
Why do we have euro?
Liberal intergovernmentalism
- intergovernmental bargaining linkage
- possible by convergence national monetary pref and policies 1980s
Neo-functionalism
- spill over
- transnational network monetary experts - central bankers
Euro and debt crisis
Non euro countries exerted strong pressure on euro-17 not to be decoupled from major developments in eurozone
Eurozone countries been eager keep non euro countries and eu institutions closely aligned
More influence for insiders?
Consequences for decision-making process?
Those who opt out of important policy fields will lose influence generally
Free rider effect
Network capital = set potential cooperation partners that an actor has access to gain and spread into and building coalitions during negotiations
- UK = positioned in centre - highest network capital 2009
- Sweden and Denmark = 4, 5 ahead Spain and Italy
- -> euro-outsiders clearly not placed in outer rings
Their influence is perceived to be reduced as regards to Eurozone
Benefits of the Euro
No exchange rate insecurity - no related losses for firms
Eliminated transaction costs (changing currencies)
Avoids competitive devaluations
Increased price transparency
Increased competition
More trade w euro zone and more foreign investment
Desired results:
- price stability and security of ppp (larger currency zone = better stability = better projections of markets by firms)
- low inflation and interest rates
- enhanced international credibility of currency should –> more investment jobs and lower mortgages
Economic risks of EMU
Diff econ performances of MS and diff understanding of equity
Diff econ cycles - one inflation rate won’t suit all
Inability combat recession
Loss econ sovereignty
Greater exposure to each other
Economic costs of EMU
Default domino effect
Euro exit of debtor state would undermine trade position of creditor states - dissolution of export markets and effect would have on ER of €
–> euro countries can’t afford one to go bankrupt
But can’t unconditionally vouch for each other - against ‘no bail out clause’
Political costs of EMU
Risk contagion means European leaders had to respond but only provide financial aid w strict policy
Clear reduction national financial autonomy
Why did UK opt out?
EMU was/is deeply unpopular w ordinary people
British didn’t want lose sovereignty
City wanted retain financial sovereignty
Reluctance to suffer predicted economic damage of single currency
- 1 policy fits all doesn’t work
EMU deemed inappropriate for UK’s pattern of international trade
Benefits of UK not being in euro
Retaining greater national self-determination and democratic control in economic and monetary policies
Avoiding cuts in public expenditure and/or increase in tax to meet 3% budget deficit
Disadvantages of UK not being in euro
UK very affected by policies adopted by EMU members but can’t fully participate in decision making
Lose out on competitive advantage
Potentially higher risk on interest rates, greater exchange rate volatility, lower rates of investment and higher unemployment
