EMU
What does EMU stand for?
European
Monetary
Union
Is it true that risk sharing and monetary solidarity make it plausible for Eurozone countries to specialise more easily?
Yes, because specialisation always comes with huge costs. Therefore, by diversifying risks with a monetary union, members can take more gainful risks, specialise, without raising the potential damage to themselves.
Name at least three countries that were deeply affected by the Euro crisis.
Spain, Ireland, Italy, Greece...
What organisation was created on the onset of the Euro crisis, as to better address it?
The European Stabilisation Mechanism, located in Luxembourg City.
Is it true that the Euro crisis reduced Euroscepticism all across the Eurozone?
No, on the contrary, it fueled Eurosceptic political groups and demands.
In which Treaty did the EU's member states agree on creating a monetary union?
Treaty of Maastricht, 1992
Is a "transfer union" an example of a risk-sharing mechanism in the Eurozone? If yes, what does it consist of?
Yes, it is an example of a risk-sharing mechanism. It is a settlement between countries that allows for large-scale financial and economic transfers from wealthier to less rich member states.
What year did the Euro crisis start?
2009
What is a bailout, in the context of the Euro crisis?
A bailout is the act of giving financial assistance to a failing business or economy to save it from collapse.
How did northern Euro countries view their southern counterparts after the crisis?
They portrayed southern countries as guilty of the financial crisis, due to their lack of fiscal rigor and inefficience.
What country's central bank was reluctant on allowing the creation of the European Monetary Union? Why?
Germany's: the Bundesbank. It feared:
- The Euro would be a more unstable currency, less stable than the Deutsche Mark.
- That other member states' fiscal discipline would be inadequate.
- That Germany would lose sovereignity over such a sensitive area: its own currency.
What do we mean by monetary solidarity?
In the context of the Eurozone, it refers to the idea of common support and risk-sharing among members of the Euro area. For example, when any member state that faces a financial or economic crisis is assisted, the monetary solidarity is manifested.
What fundamental type of economic crisis does the Eurozone crisis fundamentally represent, according to analysts?
In its essence, the Eurozone crisis is a debt and balance-of-payments (BOP) crisis. Countries within the Eurozone borrowed massively, and this led to large current account deficits in the periphery.
What were the two mechanisms debtor states followed to address this problematic?
- Structural reforms, as to increase competitiveness.
- Austerity reforms, by implementing public spending cuts and tax increases.
How did the European Central Bank's power evolve after the crisis?
With member states deadlocked, the ECB became the principal (and practically sole) Eurozone economic institution capable of attempting to address the crisis, leading to political controversy over its aggressive monetary policies
What was the reasoning behind Germany's Chancellor Helmut Kohl, and France's President François Miterrand, push for the creation of the EMU?
They sought to present a monetary union that would bind the newly unified Germany to Europe, reassuring France's support to German unification.
What are the main arguments of those opposing monetary solidarity and risk-sharing in the Eurozone?
They fear excessive risk taking by other member states, increasing interdependence, losing sovereignity, being susceptible to the externalities of other nations...
What were the two varieties of capitalism present in the Eurozone when the crisis broke out? Which one had it easier to recover from the economic and financial shock?
There are two differing modes of capitalism in the Eurozone:
a) The coordinated market economies in northern Europe, which operate export-led growth models and present wage restraints.
b) The mixed-market economies of southern Europe, where governments pursue demand-led growth, wage restraints are not common, and larger segments of the workforce are less skilled.
The northern states had it easier to recover from the Eurocrisis, suffering way less than their southern neighbours.
Guess the German contribution in loans to other Euro countries, by 2012. The nearest numerical response will get the points.
€220 billion, by the end of 2012, which was equivalent to many governmental budgets.
How did the crisis affect political unity and public opinion in Europe?
The crisis divided Eurozone member states, leading to bitterness among them. Furthermore, trust in EU institutions and democracy fell significantly among the European public, and euroscepticism was strengthened as a result
Is the EMU limited only to the Euro Area member states, or does it also expand beyond its borders?
Yes, it actually does goes beyond its borders. Countries like Denmark, Bulgaria (until next year), Cameroon, Central African Republic or Bosnia and Herzegovina, have their currencies pegged to the euro.
How can you apply the concept of the "tragedy of the commons" to the notion of a common currency, in the European case?
The use of the Euro, the common currency, by the Eurozone's member states needs to be monitored. This is fundamental to prevent a "tragedy of the commons": uses that could diminish the quality of the currency, the common resource.
What role did the European Central Blank play in the outburst of the Euro crisis?
The European Central Bank was required to adopt a single monetary policy. This resulted in low or negative real interest rates in the rapidly growing periphery (e.g., Ireland and Southern Europe), which created strong incentives for borrowing there. So, financial institutions in the richer Eurozone states (e.g., Germany) sought higher-yielding opportunities in the periphery, leading to substantial capital flows from North to South. This process fueled an upward spiral, resulting in a financial bubble, primarily in housing markets, which led to large current account surpluses in the core Euro economies and large deficits in the periphery
Why did many agree that austerity measures would make the Euro crisis even worse in debtor states?
Because budget cuts were depressing GDP so much that many debtor countries' deficits were barely declining. Therefore, institutions like the IMF suggested that southern European economies and unemployment rates would likely improve in the near term only if austerity measures were diluted in favour of some reflation.
Which specific demographic groups suffered the most severe consequences regarding unemployment in debtor states like Greece and Spain?
The consequences of the crisis hit the young, male, and less educated people hardest