• Toview thisPDFasaprojectablepresentation,savethefile,click“view”inthetopmenubar,&select“fullscreenmode.”Uponcompletionofthepresentation,hitESCtoexitthefile.

• TorequestaneditablePPT versionofthepresentation,sendarequesttoCarolinaK12@unc.edu

• Wherehaveyouheardtheword“union”?• Whatorganizations,people,countries,etc.youassociatethewordwith?

WhatistheEuropeanUnion?

• TheEuropeanUnionisauniqueeconomicandpoliticalpartnership between27Europeancountries.

WhyWastheEuropeanUnionCreated?

• TheEUwascreatedintheaftermathofWWII.Thefirststepsweretofoster economiccooperation:countriesthattrade withoneanotherareeconomicallyinterdependentandwillthusavoidconflict.

• Throughaseriesoftradeandpoliticalagreementsfrom1951– 1993,aEuropeanCommunity(EC)wascreated.– Focusedoneconomicandpoliticalcooperationamongthecountries.

WhyWastheEuropeanUnionCreated?

• In1993,theMaastrichtTreatywassigned,replacingtheECwiththeEU.

• MaastrichtTreatyestablished:– CommonForeignandSecurityPolicy– Coordinatedpolicyonasylum,immigration,drugs,andterrorism

– EUcitizenship,whichallowedpeopletotravelfreelythroughouttheEU

– Establishedatimetableforaneconomicandmonetaryunion.

– Specifiedtheeconomicandbudgetarycriteriawhichwoulddeterminewhencountrieswerereadytojoin

EuropeanUnionSymbols• Thestarssymbolize:

– unity– solidarity– harmonyamongthe

peoplesofEurope.

• Thenumberofstarshasnothingtodowiththenumberofmembercountries,thoughthecircleisasymbolofunity.

EuropeanUnionSymbols

“Unitedindiversity”- EUMotto

ItsignifieshowEuropeanshavecometogether,intheformoftheEU,toworkforpeaceandprosperity,whileatthesametimebeingenrichedbythecontinent'smanydifferent

cultures,traditionsandlanguages.

PoliticalComponentoftheEU• Whatbeganasapurelyeconomicunionhasevolvedinto

anorganizationspanningallareas,from development aidto environmentalpolicy.

• TheEUactivelypromotes humanrightsanddemocracy andhasthemostambitiousemissionreductiontargetsfor fightingclimatechange intheworld.

• Thankstothe abolitionofbordercontrols betweenEUcountries,itisnowpossibleforpeopletotravelfreelywithinmostoftheEU.IthasalsobecomemucheasiertoliveandworkinanotherEUcountry.

HowAreDecisionsMade?

• Codecision.– ThedirectlyelectedEuropeanParliamenthastoapproveEUlegislationtogetherwiththeCouncil(thegovernmentsofthe27EUcountries).

• BeforeaCommissionproposesnewlaws,itassessesthepotentialimpact,listingtheadvantagesanddisadvantagestothepolicy.– Solicitawiderangeofinput:experts,citizens,businesses,etc.

HowAreDecisionsMade?• TheEuropeanParliamentandtheCouncilreviewproposalsbytheCommissionandproposeamendments.

• IftheCouncilandtheParliamentcannotagreeuponamendments,asecondreadingtakesplace.

• Inthesecondreading,theParliamentandCouncilcanagainproposeamendments.ParliamenthasthepowertoblocktheproposedlegislationifitcannotagreewiththeCouncil.

HowAreDecisionsMade?

• Ifthetwoinstitutionsagreeonamendments,theproposedlegislationcanbeadopted.

• Iftheycannotagree,a conciliationcommittee triestofindasolution.

• BoththeCouncilandtheParliamentcanblockthelegislativeproposalatthisfinalreading.

WhatistheEuropeanMonetaryUnion?

• The EconomicandMonetaryUnion involvesthecoordinationofeconomicandfiscalpolicies,acommonmonetarypolicy andtheeuroasthecommoncurrency.– Eurozone– EMU

• Theeurowaslaunchedon1January1999asavirtualcurrencyforcash-lesspaymentsandaccountingpurposes.

• Banknotesandcoins wereintroducedon1January2002.

WhatistheEuropeanMonetaryUnion?

• Austria• Belgium• Cyprus• Estonia• Finland• France• Germany

• Greece• Ireland• Italy• Luxembourg• Malta• theNetherlands

• Portugal• Slovakia• Slovenia• Spain

17of27EUcountriesarepartoftheEurozone

Whyasinglecurrency?

• Asinglecurrencyoffersmanyadvantages:– eliminatingfluctuatingexchangeratesandexchangecosts.

– Becauseitiseasierforcompaniestoconductcross-bordertradeandtheeconomyismorestable,theeconomygrowsandconsumershavemorechoice.

– encouragespeopletotravelandshopinothercountries.

– Atgloballevel,theeurogivestheEUmoreclout,asitisthesecondmostimportantinternationalcurrencyaftertheUSdollar.

WhyaSingleCurrency?

• Asinglecurrencyalsoallowscountrieswithsmallereconomicstoborrowmoremoney.– Thiscanhelpleadtomoreeconomicgrowth.– Butborrowingtoomuch,canleaddefault,ortheinabilitytopaybackwhatyouhaveborrowed.

Whatarethedisadvantagestoasinglecurrency?

• Joiningamonetaryunioncanleadtothefollowing:• Monetarypolicy notsuitedtotheindividualcounty’sneeds.• Larger economicfluctuations.• Budgetdeficits• Inabilitytodevaluecurrency

– Therearetwoimplicationsforacurrencydevaluation. First,devaluationmakesacountry'sexportsrelativelylessexpensiveforforeignersandsecond,itmakesforeignproductsrelativelymoreexpensivefordomesticconsumers,discouragingimports.

• Possiblemoralhazard inthelegislationandexecutionofgovernmentbudgets.– Meaning,governmentscouldborrowrecklesslyandknowthatsomeone

willbailthemout.

• Coststhatarenotnecessarilyeconomicinclude• Lossofsomecountryidentityandculture.• Forexample,youcannolongerputthepictureofyourheroesonyourcurrency.

WhatisMonetaryPolicy?

• Theterm"monetarypolicy"referstowhatacentralbank,doestoinfluencetheamountofmoneyandcreditintheeconomy.

• Whathappenstomoneyandcreditaffectsinterestrates(thecostofcredit)andtheperformanceoftheeconomy.

Whatisinflation?

• Inflationisasustainedincreaseinthegenerallevelofprices,whichisequivalenttoadeclineinthe value orpurchasingpowerofmoney.

• Ifthesupplyofmoneyandcreditincreasestoorapidlyovertime,theresultcouldbeinflation.– Asageneralrule,ifaCentralBankprintstoomuchmoney,inflationgoesupbecausethemoneyisworthless.

WhoManagesMonetaryPolicy?• Theindependent EuropeanCentralBank isinchargeofmonetaryissues.

– Itsmaingoalistomaintainpricestability orkeepinginflationlow.

– TheECBalsosetsanumberof keyinterestrates fortheeuroarea.Theseratesdeterminehowmuchyoupaywhenyouborrowmoney.

• TaxesarestillleviedbyEUcountriesandeachcountrydecidesuponitsownfiscalpolicy.

WhatisFiscalPolicy?

• Theusebyagovernmentofitstaxing andspendingpowertoinfluenceeconomicactivity.

• IntheEU,theEuropeanCentralBankisresponsibleformonetarypolicy.Whileeachindividualgovernmentisresponsibleforitsownfiscalpolicy

WhatistheEurozoneCrisis?

• WhencountrieswithweakereconomiesjoinedtheEuro,theywereallowedtoborrowmoremoneybecausetheywereviewedasasafeborrower.

• Unfortunately,duetopoorgovernmentplanning,countriesborrowedlargesumsofmoneytopayforvariousprojectsandservicesandaccumulatedhugedebts.

WhatistheEurozoneCrisis?

• Afterthe2008USfinancialcrisis,theworldexperiencedaneconomicslowdown.

• Thisslowdownforcedgovernmentstorundeficitstocontinuetooperateandprovideservices.

• In2009,itbecameclearthatGreecehadtoomuchdebtandwouldbeunabletorepayit.

WhatistheEurozoneCrisis?• IfGreecedefaulted,orfailedtopaybacktheirdebts,itwouldaffecttheentireEurozone.

• AllthecountriesusingtheEurowouldbeviewedasacreditrisk,andbanksandothercountrieswouldnotlendmoneytotheEurozone.

• ThiswouldshutdownalltheEurozoneeconomiesbecausecountries,businesses,andpeopleneedtoborrowmoneytooperate.

WhatistheEurozoneCrisis?

• AsaresultofGreece’sproblems,thecrisishasspreadtotheotherPIIGScountriesandtheyhaveseentheirdeficitsriseanddebtswell.– Portugal,Ireland,Italy,Greece,Spain.– ConsideredtheweakerEuropeaneconomies

• GermanyandFrancestillhavestableeconomies,butiftheEurozonecollapses,theireconomies,willsufferbecausemanyoftheirbanksholdthedebtsofthePIIGSnations.

WhatistheEurozoneCrisis?• TwomajorsolutionstotheEurozoneCrisis:

1. Germanycouldbailouttheweakereconomies,buttheyarereluctanttobecauseofmoralhazard andbecausetheyfeelitwillpunishGermanyforthepoordecisionsmadebyothernations.

2. TheEuropeanCentralBankcanactasthelenderoflastresortandbailoutthebanksbyprintingmoremoneyandgivingittocountriestopayofftheirdebts.• ThisiswastheUSFederalReservedidin2008topreventthecollapseoftheUSbankingsystem.Thisiswhatthe“bailouts”referto.

WhatistheEurozoneCrisis?

• Thehistoricalreasonsfornotwantingtobailoutnationshastodowithinflation.

• WeimarGermanyexperiencedmassiveinflationafterWorldWarI.Itwassobadthatthepriceofbreadwouldrisethousandsofdollarsinaday.

• ManyhistorianscountGermany’seconomicwoesasareasonforHitler’srisetopower.

WhatistheEurozoneCrisis?

• TheECBisafraidthatbygivingmoneytotheindebtedcountries,theywillcauseinflationtoskyrocket– whichiscountertotheirstatedmissionofkeepinginflationlow.

• Whatshouldbedone?

TwoViewsAbouttheCrisis

PaulKrugman• NobelPrizewinning

economist• Liberalopinionwriterfor

theNewYorkTimes.

DavidBrooks• Respectedpoliticalpundit

andbestsellingauthor• Conservativeopinionwriter

fortheNewYorkTimes.

Sources

• http://www.unc.edu/depts/europe/euroeconomics/

• http://www.unc.edu/depts/europe/conferences/eu/netscape5.htm

• http://europa.eu/index_en.htm