Exam review for term 2

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Published on 24 Apr 2011
School
UTSG
Department
Political Science
Course
POL207Y1
Europe Finals
Euro
-Move towards Euro began in 70s and 80s spurred by collapse of Bretton
Wood agreement which pegged everybody to the US dollar
-Us dollar and thus mark increased which was bad for trade in Europe so
moves towards fixed exchange rate and then common currency began
-Case for Euro economic and political
-1. Reduced transaction costs (Up to .6% of GDP)
-2. Exchange rate stability: more stable trade and investment within Eurozone
-3. Increased capital flows
-4. Greater price transparency as it would be easier to compare prices between
countries
-5. Dynamic effects on trade and economic liberalization
-This is all very exciting but there are risks
-1. Asymmetrical Exogenous shocks: countries cant devalue their currency if
there are local economic issues. This can only cause increased unemployment
which will be made worse by low labour mobility in Europe (people like to
stay where they are in Europe) and low wage flexibility (strong unions)
-2. Hard to make a one size fits all economy in Europe as different countries
waver between boom and bust at different times
-Political Benefits
-1. EU has to move forward or it dies. Euro was the 90s big idea
-2. It could be a common symbol of Europeanness
-3. Commission believed that the common currency necessarily grew out of
common market
-Path to Euro
-Mitterand comes to power in France, tried to socialize but all he got was
inflation. The franc was failing and socialism wasnt working. Saved himself
by commiting to the European Monetary system. Helped the EMS and ssaved
France
-EMS worked well, ensured broad exchange rate stability and routinized
devaluation
-Delors was put in charge of determining path to common currency
-1. Free capital movement in the EC and closer monetary and macro-economic
cooperation
-2. Launch of European system of central banks to moniter and coordinate
national monetary policies, transfer supervisory power to EU institutions,
progressively narrow currency fluctuations within an exchange rate
mechanism
-3. Establish irreversibly fixed exchange rates and grant full authority for
monetary policy to EC institutions
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-Momentum gained
-By 80s all EMS currencies were pegged to the mark and thus had effectively
no control over interest policies so common currency offered hope of some
regained financial sovereignty
-For Germany there was less motivation but at the same time they had no
right to claim entitlement over European interest policy
-Political change is always a spur. German unification got shit going
-Convergance Criteria brought forth at Maastricht
-Committed people to common currency and not just fixed exchange rates
-1. Price stability: average inflation rate of not more than 1.5% above the
average of the three best countries
-2. Budget discipline. Deficit cant exceed 3% of GDP and debt cant exceed
60%
-3. Currency stability: 2 years normal fluctuation without devaluation
-4. Interest rate convergence, average long term interest rates not exceeding
the three best performing countries by 2%
-Run up to stage 3
-German unification
-1992-93: currency crisis. Pound, lira are thrown out of the EMS. Spain pre-emptively
devalued, finland knocked out and france was only saved by German intervention
and expansion of bonds
-Embittered UK strengthened the resolve of others to meet the CC
-People began to focus on the 3% and stopped caring about the 60%
-France, Italy and Portugal made painful cuts to reach the 3%
-Currencies locked in in 1999. Euro introduced in 2002
-UK, Denmark, Sweden stayed out. Greece missed 99 deadline but cooked books to
make it in for 2002
-ECB established in Frankfurt with Duigenberg (Germanys choice) as first prez
-ECB has a mandate to keep inflation under 2%. This causes ECB to only care about
inflation and not things like unemployment
-As of 2009::
-Things seemed to be doing okay. No massive exogenous shock, nobody pulled out of
the union and the switchover went well. Euro became second ranking currency in
the world
-Stability
-Euro dropped at first, then rose sharply.
-Driven more by American ecomony than European
-L:ots of movement but no collapse
-At first peripheary boomed while mainland suffered but now opposite
-Current Crisis
-Low inflation rates partly fed housing boom
-Also Germay restored its competitiveness
-Housing crash led to sharp fall in tax receipts and this all coincided with worldwide
recession
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-Germany in doubly strong position: reduced wages and no housing boom helped it.
-But structural crisis in peripheray
-Punchline: either periph countries get their debt down, EU forces them to or crisis
continues
-Crisis was partially caused by demise of stability pact
-2001: Ireland only censured for spending too much of 4.6% surplus
-2002: Ger, Por, and eventually France breach 3% rule, never fined
-Fr and Germany continue to violate the rules and nobody does anything
-Nov. 2003 council voted against sanctions
-ECB: controls inflation and maintains price stability.
European Foreign Policy
-Early attempts:
-1969: European leaders call for European political cooperation procedure
-A reaction to detente (brandt was opening up towards east in hopes that thye
would see and want to copy western prosperity) and yom kippur war (Europe
had to rally with Israel against OPEC)
-Involved routinized meetings of heads of state (later EC) and foreign
ministers
-Council president chaired meeting and searched for consensus
-Result: painfully slow process. Following Afghanistan I, EC took 3 years to
impose limited sanctions on USSR
-SEA was the next effort to build on limited political cooperation
-1. Comission fully and EP closely associated with EPC as opposed to just
states
-2. Political committee could be convened at short notice by request of 3
member states
-3. Declaration made in favour of consistency amongst external policies of EC
-4. Mechanism for achieving agreement remained intergouvernmental, states
had to agree
-Maastricht
-Goal was to make a common EU FP which enveloped Germany in the wake of
fears of 4th Reich after German reunification
-EPC was transformed into Common Foreign and Security policy which
became an intergouvernmental pillar of the EU. Called for cooperation
between intergouvernmental and supranational pillars and outlined goals
-1. Safeguarding common calues, fundamental interests and independence of
EU
-2. Strengthening security of EU
-3. Preserving peace and strengthening international security in accordance
with the principles of UN charter and conference of security and coop in
Europe
-4. Promoting internatonal coop
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Document Summary

Move towards euro began in 70"s and 80"s spurred by collapse of bretton. Wood agreement which pegged everybody to the us dollar. Us dollar and thus mark increased which was bad for trade in europe so moves towards fixed exchange rate and then common currency began. This is all very exciting but there are r isks. Political benefits: asymmetrical exogenous shocks: countries can"t devalue their currency if there are local economic issues. Euro was the 90"s big idea: i t could be a common symbol of europeanness, commission believed that the common currency necessarily grew out of common market. Mitterand comes to power in france, t ried to socialize but all he got was inflation. The franc was failing and socialism wasn"t working. Saved himself by commiting to the european monetary system. Ems worked well, ensured broad exchange rate stability and routinized devaluation.

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