Dixon.docx

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Department
Political Science
Course
POL208Y1
Professor
Lilach Gilady
Semester
Winter

Description
Can Europe’s Divided House Stand? Separating Fiscal and Monetary Union Hugo Dixon Online Summary Most pundits argue the eurozone has only two options: break up or create a fiscal union to match its monetary one. In fact, there's a third, and better, path: adopt tighter market discipline, bailing out illiquid countries while letting truly insolvent ones go bust. The result would be a collection of fitter economies and a Europe strong enough to play a big role on the world stage.  Fiscal union is the integration of the fiscal policy of nations or states. Under fiscal union decisions about the collection and expenditure of taxes are taken by common institutions, shared by the participating governments. For example, in federal nations such as the United States, fiscal policy is determined to a large extent by the central government, which is empowered to raise taxes, borrow and spend.  Advantages of common currency: en people do not have to worry about fluctuating currencies, they can more easily do business across borders, make long-term investments anywhere in the market, and build transnational enterprises  disadvantage: individual countries lose the ability to tailor their monetary policies to their particular needs by setting their own interest rates. Instead, interest rates are set by the European Central Bank, which is a problem because different economies move at different speeds.  Whether the benefits of having a common currency outweigh the costs depends largely on three factors: the similarity among the economies covered by the single monetary policy, their flexibility, and the existence of a large central budget that can be used to transfer money from flourishing regions to struggling ones  The eurozone does not come out well by any of these measures, especially in comparison with the United States. Europe's economies are diverse, its labor markets are hemmed in by elaborate restricti
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