European Union-PP-2010_462

European Union-PP-2010_462 - The European Union FBE 462 1...

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Unformatted text preview: The European Union FBE 462 1 EEC, EU and the Euro The European Union 2 Finland Sweden Ireland Denmark England Netherlands Belgium Germany France Portugal Spain Austria Italy Greece 3 Recent Enlargement, May 1st 2004 4 EU and the Euro Who is in the EU now? Original 6: Belgium, France, Germany, Italy, Luxemburg, Netherlands Later (9): Austria, Denmark, Finland, Greece, Ireland, Portugal, Spain, Sweden, U.K. Recent (10): Czech Republic, Poland, Cyprus, Estonia, Latvia, Lithuania, Hungary, Malta, Slovenia, Slovak Republic, Latest (2): Bulgaria, Romania In Line: Croatia, Turkey Associate member: French Guyana! No Norway, no Switzerland The latest wave mostly was looking for political security 5 Treaty of Paris (1951) Creates the European Coal & Steel Community Replaces the International Ruhr Commission France, Germany, Italy, Netherlands, Belgium, Luxemburg W. Churchill’s 1946 speech on the creation of the United States of Europe Schuman declaration (1950) 6 Churchill (U. of Zurich, 1946): We all know that the two World Wars through which we have passed arose out of the vain passion of Germany to play a dominating part in the world. In this last struggle crimes and massacres have been committed for which there is no parallel since the Mongol invasion of the 13th century, no equal at any time in human history. 7 Churchill (U. of Zurich, 1946): I am now going to say something that will astonish you. The first step in the re-creation of the European family must be a partnership between France and Germany. In this way only can France recover the moral and cultural leadership of Europe. There can be no revival of Europe without a spiritually great France and a spiritually great Germany. “Let Europe arise!” 8 Treaty of Rome (1957) Establishes European Economic Community E.E.C. Belgium, France, Germany, Italy, Luxembourg, Netherlands France, Germany, Italy, Benelux 9 Treaty of Rome (1957) The EEC was a “Customs Union” Elimination of internal tariffs Common external tariffs of 15% Existing members’ average 10 Treaty of Rome (1957) Institutionalize the virtuous circle of export-led growth The elimination of tariffs would create trade trade creation The imposition of external tariffs would reduce dependence from the United States, Soviet Union, etc. trade diversion 11 EEC, EU and the Euro Origins of the European Union Political cooperation The solution to the “German Problem” Binding Germany to prevent yet another European or world war Reconstruction of Europe Coal & Steel, Agricultural, Atomic Energy Agreements Benelux, France, Germany, Italy Economic cooperation European Economic Community European Common Market European Union “…as long as France and Germany agree!” And who paid? 12 EEC to EU In 1967, the EEC, the European Atomic Energy Commission, and the European Coal and Steel Community were merged to form the European Community (EC) Later the “Common Market” The Single European Act (1986-87) and the Maastricht Treaty (1993) converted the EC into the European Union Or “disunion” as some critics claim 13 Admission Criteria to the E.U. Stable democratic institutions Stable institutions guaranteeing democracy, the rule of law, human rights and the protection of minorities Market-oriented economies Existence of a functioning market economy as well as the capacity to cope with competitive pressures and market forces within the Union 14 Admission Criteria to the E.U. Ability to honor membership obligations Includes adherence to aims of political, economic and monetary union. For example, Pass “mandatory” laws in a timely manner Adhere to the economic parameters set by the E.U. Deficit ratios, Debt ratios must be able to coordinate their economic policies and avoid any direct central bank financing of public sector deficits 15 Global Politics and the Balance of Power Even before and particularly since the demise of the USSR, Europe has not been interested in counterbalancing the U.S.’s sole hyperpower status by amassing power Europe is economically strong but militarily weak its impact on global issues is not commensurate to its economic power Europe’s “force de frappe” is mostly a joke 16 Global Politics and the Balance of Power Why? The U.S.’s defense guarantee has enabled Europe to spend much more on social programs the European experiment to take hold and flourish The European view eschews power (macht politics) in favor of economic ties, engagement and agreement Europe wants to envelop the U.S. in a web of “international rules” to blunt and control its power As Robert Kagan puts it in Of Paradise and Power, “…these are the time-honored tactics of the weak.” 17 Global Politics and the Balance of Power Europeans believe that their approach can solve world problems better than the use of power This European view is in direct conflict with the idea, urged by many, that Europe should acquire substantial military power Europe’s “civilizing mission” will be threatened every time the U.S. resorts to power (because it can), anywhere in the world If power is necessary, does it mean that the European experiment itself might fail under some future stress? 18 Capital Mobility in the EC Capital moves from areas where the return on capital is low to areas where the return is high 19 Capital Mobility in the EC The movement of capital to areas with high returns tends to reduce rates of return in these areas and increases returns in the areas with low rates More efficient allocation These are significant redistribution effects that motivate conservative resistance 20 Capital Mobility in the EC Up until the 1980s there were extensive capital controls in the EC. Individuals and firms were not allow to open bank deposits in other EC countries Friday night trains to Switzerland In July 1990 eliminated these controls were One of the causes of the 1992 collapse of EMS 21 Capital Mobility in the EC In 1993 major liberalization of the banking system Increased merger and acquisition activities Particularly in the service and banking sectors 22 Labor Mobility in the EC Labor mobility is desirable Workers move from areas with low wages to areas of high wages The movement of workers to areas with high wages tends to reduce the wages of existing workers Makes migrants better off 23 Labor Mobility in the EC The redistribution effects motivates conservative resistance But intrinsic lack of labor mobility even within each country prevents this mechanism from working well in the EC Cultural reasons Institutional reasons Availability of housing, unemployment benefits, other council housing, high 24 EU and the Euro Key features There is a Constitution or an Agreement Just revised with the Lisbon Treaty (2007) European Parliament Now 750 members The Commission 24 directorates The Council of Ministers Double Majority decision-making 55% of the countries and 65% of the population No opting-out of the EU; this has been changed with the Lisbon treaty No opting out of the Euro 25 EU and the Euro The quest for economic integration Why? The quest for fixed FX rates Better RFX adjustment procedures Evenhanded treatment of devaluations/revaluations The quest for monetary policy credibility The tale (tail) of the Bundesbank 26 Areas of the Treaty Government procurement Government units purchase their supplies from domestic companies Technical standards Countries require different standards for some products 29 Areas of the Treaty Local content and rules of origin Local laws require foreign firms to buy fixed percentages of their production supplies from domestic firms Physical barriers Internal customs stations slow down communication and impose bureaucratic burdens 30 Areas of the Treaty Fiscal frontiers VAT, excise taxes, corporate taxes, are very different among countries 31 The Treaty of Lisbon The Treaty of Lisbon was signed on 12/31/2007 Will take effect probably at the end of 2009 (now) Provisions: Enhanced power of the European Parliament Some law-making power Now direct, universal vote for 5 year term (751 Reps --MEPs) Up to now, these elections were a bit of a joke More involvement of national parliaments Enforced subsidiarity Withdrawal from the Union is a possibility No separate withdrawal from the Euro! 32 The Treaty of Lisbon Qualified majority voting will be extended to many areas Double majority rule from 2014: Votes representing at least 55% of the member states representing at least 65% of the Union’s population President of the European Council Elected by the Council for a 2 ½ year term (Tony Blair?) Charter of Fundamental Rights (civil, political, economic, social) A new High Representative for the Union in Foreign Affairs A single legal personality for the Union More pledges for a European Security and Defence policy 33 EU and the Euro On January 1, 1999 the Ecu was replaced by the “Euro” (EUR) at a rate of one-to-one 34 Who is in the Euro? The BAFFLING SIP! Belgium, Austria, Finland, France, Luxemburg, Netherlands, Germany, Spain, Ireland, Portugal + Greece, Cyprus, Malta, Slovakia, Slovenia Italy, England, Denmark, Sweden have opted out Denmark is rethinking this Most of the latest wave countries don’t qualify yet 35 EU and the Euro The European Central Bank --ECB Single goal: Provide price stability Defined as 2% or less average inflation 36 Does a Common Currency Make Sense? Fixed FX rates without tears Giving up monetary independence We are seen the downside of this right now Giving up fiscal autonomy When push comes to shove? Watch & learn! Surrendering many sovereign prerogatives Stacks of EU laws have been passed by the national parliaments as required by the Treaty agreement; stacks remain to be passed 37 Optimal Currency Area Is Europe an optimal currency area? This isn’t working out very well! Will Europe become an optimal currency area? Was the U.S. an optimal currency area? Is the U.S. now an optimal currency area? 38 Common Market Is Europe now a common market? Trade Finance Business Labor mobility Laws Is Europe going to become a common market? 39 BIG ISSUES! How will the EU deal with expansion? New Constitution finally eliminates the unanimity rule Will there be a United States of Europe? Will we see more currency unions? 41 TAKEAWAYS The European Union was formed to solve primarily a political problem Germany Economic issues were secondary Things happened only when France and Germany agreed In the 1970’s France, England, Italy and others wanted to “borrow” the credibility of the Bundesbank That and the desire for fixed FX rates led to the Euro through many difficult steps Europe is now not yet an optimal currency area! 42 ...
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This note was uploaded on 02/15/2011 for the course FBE 462 at USC.

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