17 Monetary Union The Euro (Mar 7)

17 Monetary Union The Euro (Mar 7) - MAASTRICHT (1991) AND...

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MAASTRICHT (1991) AND THE EURO/EMU Maastricht: What was decided (Dec 1991) --Create common currency; issued/managed by European Central Bank (ECB); introduced over an 8-year period for those willing and qualified --United Kingdom, Denmark, Sweden opt out --Extend EU competency in foreign policy, security, defense matters; what each can’t do nationally, do supranationally? Theoretical considerations: Economic Why exchange rates matter --why currency appreciates, why depreciates, trade and domestic consequences
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Theory of optimum currency area: depends on --efficiency gains from single currency --output loss from additional constraints of stabilization policies --with Euro, size of gains and costs not so clear --no mechanism for transfers when economic events affect one country differently from others Political consideration s --momentum --needed to complete SEA by disallowing currency devaluations? The plan: Members must meet 4 criteria but criteria not related to criteria for optimal currency union, don’t
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identify most suitable members. Designed to prevent monetary union? Keep out profligate? Dynamics of bargain
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17 Monetary Union The Euro (Mar 7) - MAASTRICHT (1991) AND...

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