GOV_298_20 - The European Monetary Union READING...

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The European Monetary Union READING ASSIGNMENT: McNamara, Kathleen R. 2008. A rivalry in the making? The Euro and inte International Political Economy 15 (3):439-459.
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Plan
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International Cooperation Throughout the semester… disappointment Little substantial sacrifice of sovereignty IOs not really fulfilling their stated goals “dirty work,” “laundering,” “resolve” Is real cooperation with genuine sacrifice possible? YES! The Euro represents an ultimate* commitment *unless they really figure out a way to kick out Greece (I doubt it)
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The EU
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The Eurozone
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Membership Some countries, the Eurozone doesn’t want (yet/ever?) Must do the 2 year European Exchange Rate Mechanism Some countries don’t want the Eurozone (yet/ever?) Opt out – Denmark, UK, Sweden (de facto) Why? A real commitment To understand how it’s a strong commitment and why some countries want it, let’s go back…
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A puzzle: Why were countries able to maintain fixed exchange rates with high capital mobility in the late 19 th century? 1944 Degree of global capital mobility 1971-3 Fixed exchange rates + Capital controls Floating exchange rates + Open capital flows 1870 Interwar period Fixed exchange rates + Open capital flows
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Why?
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Answer: Democracy 1944 Degree of global capital mobility 1971-3 Fixed exchange rates + Capital controls Floating exchange rates + Open capital flows 1870 Interwar period Fixed exchange rates + Open capital flows Growing #’s of democracies Few democracies
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The international collective action problem: How can we allow for the free flow of goods, service, and capital without: Imbalances leading to beggar-thy-neighbor policies
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The solution IMF to the rescue! Soften the blow of adjustment Moral hazard? Conditionality? Bretton Woods just falls apart… The IMF never really worked as intended
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The European Monetary System 1979 Fixed but adjustable The Bundesbank (Germany) used monetary policy to keep inflation low, and other countries engaged in foreign exchange market intervention to fix their currencies to the German mark
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Mitterand – socialist president – believed German monetary policy was strangling Expansionist monetary policy (e.g., lowered interest rates)
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GOV_298_20 - The European Monetary Union READING...

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