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European Union

European Union. Dr. Wendy Jeffus Harvard Extension School. After WWII… (~1945). There was one thing most of the world leaders agreed upon… They did not want another World War. Photo: Wikipedia.org "Fat Man" is the codename, allegedly named after

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European Union

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  1. European Union Dr. Wendy Jeffus Harvard Extension School

  2. After WWII… (~1945) • There was one thing most of the world leaders agreed upon… • They did not want another World War. Photo: Wikipedia.org "Fat Man" is the codename, allegedly named after Winston Churchill, of the atomic bomb that was detonated over Nagasaki, Japan.

  3. Integration & Poverty Reduction • The 44 Allied Powers met in Bretton Woods in 1944. • The World Bank • Created to rebuild the destroyed Europe after World War II • The International Monetary Fund (IMF) • Main goals: Stabilize exchange rates and supervise the reconstruction of the world's international payment system. • In 1946, Winston Churchill called for a “United States of Europe” but efforts failed.

  4. Unstoppable Storm Source: cartoonstock.com

  5. Three Pillars…

  6. Euro • The euro is the currency of 13 European Union countries: Belgium, Germany, Greece, Spain, France, Ireland, Italy, Luxembourg, the Netherlands, Austria, Portugal, Slovenia and Finland. • Cyprus and Malta will adopt the euro on 1 January 2008. 1 January 1999 Adoption of the euro 1 January 2002 introduction of euro cash Transition period Council Decision on the adoption of the euro Dual circulation period ends 28 February 2002 http://ec.europa.eu/euro/entry.html

  7. The Euro

  8. Convergence criteria • Price stability: • inflation rate not exceeding by more than 1.5 percentage points that of three best performing countries; • Public finances: • absence of an excessive government deficit, which is defined in terms of the government deficit having to be below the reference value of 3% of GDP and the level and evolution of the government debt compared to the reference value of 60% of GDP; • Exchange rate stability: • observance of the normal margins of the exchange rate mechanism of the EMS without severe tensions or devaluation for 2 years; • Long term interest rates: • not exceeding by more than 2 percentage points that of the three best performing countries in terms of price stability.

  9. What did “convergence” mean? • Yes a Common Currency… but also… • Tax Systems • Pensions • Health Care • Work Rules • Agriculture Subsidies • Fiscal Budgets • Single European Act: Free Movement of People, Goods, and Services…

  10. Single European Act • ~1987 The Single European Act (SEA) revised the Treaties of Rome. • To add new momentum to European integration and to complete the internal market. • Physical Barriers • Customs controls & Red tape • Technical Barriers • National product standards & Conflicting business laws • Fiscal Barriers • Value-added Taxes

  11. Challenges • Price differentials • Pharmaceuticals, Electronics, etc. • Diverse Regulations • Environment, Health, Standards • Employment Crisis • High min wage, payroll taxes, & unemployment benefits. • Culture • Is it true that the Netherlands is closer to the US, than to France? • Recession in Europe

  12. Price Convergence: • Automobiles • The most expensive: Germany and Austria • The cheapest: Spain, Greece, Finland and Denmark http://europa.eu/rapid/pressReleasesAction.do?reference=IP/02/1109&format= HTML&aged=0&language=EN&guiLanguage=en

  13. Question • Should the European Commission publish this information? • http://ec.europa.eu/comm/competition/sectors/motor_vehicles/overview_en.html • What are the benefits and costs?

  14. Regulations • Some members of the media seem to think the regulations have gone overboard… Source: Cartoonstock.com

  15. Regional Development • What is the EU doing to support regional development? • What have been the pros and cons to these actions?

  16. Other Issues

  17. Other Issues: Labor Market • Migration of works was not as high as originally expected. • What was the impact of migration? What are the pros and cons? • Reduced unemployment benefits • Part-time employment increased • Reduction in the work week. • What is the impact of a reduced work week? What are the pros and cons?

  18. Other Issues: Capital Markets • According to your case, the Single European Act clearly viewed capital markets as a “barrier to integration.” • Capital Markets in Europe were: • Regulated differently • Fragmented • Few cross-border sales of life insurance • Price of credit cards varied widely • Wide range of mortgage costs • Goals for the banking industry included: • Lower regulatory barriers • Modern capital markets

  19. European System of Central Banks • One goal: Price Stability • Free from political pressure. • Four Key Tasks: • Define Monetary Policy • Foreign Exchange • Hold/Manage Member State’s Official Reserves • Ensure Smooth Payment System • Challenge: Interest Rates • Germany had slow growth (needed a low rate) • Ireland and Spain had fast growth

  20. What were the costs and benefits? • Costs: • $30M for firms with 5,000 employees. • Benefits: • Lower interest rate differentials • Larger market • Have/Will the benefits outweigh the costs?

  21. Going Forward… • Agricultural Reforms • Cereal price guarantees • Beef guarantees • Cronyism and Corruption • http://query.nytimes.com/gst/fullpage.html?res=9E03EED6113EF935A25750C0A96F958260&n=Top/Reference/Times%20Topics/Organizations/E/European%20Commission

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