Euro Zone

12 Key excerpts on "Euro Zone"

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  The Politics of Crisis in Europe

  • Mai'a K. Davis Cross(Author)
  • 2017(Publication Date)
  • Cambridge University Press

    (Publisher)

  5 The Eurozone Crisis introduction EU member states have spent many decades crafting an “ever closer union,” particularly in the economic and monetary area. 1 They have largely followed a strategy of gradualism, creating close targets, and maintaining flexibility in achieving them (Dinan 2013). Indeed, there had long been little reason for an urgent pace of integration as this measured approach had worked well going back to the 1957 launch of the European Economic Community, a precursor to the EU. The 1992 Maastricht Treaty marked an important step in this gradual consolidation as it created both a monetary union and an economic union. The former meant the establishment of an independent European Central Bank, with a mandate to ensure price stability. The latter was purposefully left less developed as EU leaders planned to strengthen the fledgling economic union over time. The Stability and Growth Pact was a key component of this and was further codified in 1997 when member states agreed to a ceiling of 3 percent fiscal public deficit and 60 percent public debt to GDP. Essentially, in keeping with their gradual pace of integration, EU member states launched a monetary union before “completing” their economic union. The reason for this overarching gradualist strategy, instead of the wholesale establishment of a federalist economic union at the outset, was that there were certain obstacles in the way of completing the goal 1 The phrase “ever closer union” comes from the preamble to the 1957 Treaty of Rome, which established the European Economic Community. Its meaning alludes to the idea that member states agree to achieve progressive political integration. 160 of a truly single market, and EU leaders knew that these would have to be overcome in stages. The remaining obstacles mainly boiled down to differences in the nature of Eurozone member states’ economies, and attitudes toward the role of the EU and the single market.

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  United States of Europe

  European Union and the Euro Revolution

  • Manoranjan Dutta, Badi H. Baltagi, Efraim Sadka(Authors)
  • 2011(Publication Date)
  • Emerald Group Publishing Limited

    (Publisher)

  Based on GDP in PPP data of 2004, it is noted that individual member countries have marginal shares of world GDP, and together the EU-12 represents some 72 percent of the GDP of the EU-25 ( Table 5.11a ). Table 5.11b presents the same data analysis for 2009. As per the terms of accession, the new 10 members admitted to the EU in 2004, as well as the two candidate countries expected to join in 2007, are applicants for membership to the Eurozone. Denmark, Sweden, and the United Kingdom will expectedly come to reexamine their respective positions of declining to adopt the euro in light of the expansion of the EU and the euro. Comparisons between the euro and the dollar’s economic positions will then be truly useful. Table 5.11a. GDP, PPP, 2004 (%): The Eurozone and the United States Share of the world Share of the EU-25 Austria 0.47 2.18 Belgium 0.58 2.69 Finland 0.28 1.30 France 3.11 14.50 Germany 4.15 19.36 Greece 0.43 2.03 Ireland 0.29 1.34 Italy 2.90 13.51 Luxembourg 0.06 0.26 Netherlands 0.93 4.34 Portugal 0.37 1.71 Spain 1.87 8.72 USA 20.85 71.93 Based on Tables 3.4 and 3.7A. The Euro and the European Central Bank (ECB) 109 Our process of learning what we have not yet learned must continue. However, the real challenge will be to unlearn a great deal of the preconceived values we began with in the pre-EU world order. It has been argued that the absence of a well-structured intraregional macroeconomic core will not help an individual sovereign nation state–based economy optimize the economic gains for its microactors, households, and business units, since most of these individual economies are limited by marginal values of the two parameters: its shares of world GDP and trade. Its competitive functioning as an open economy thus faces a serious bottleneck. Indeed, an intraregional macroeconomic core within a global macroeconomic system is in order (see Chapter 8; see also Dutta, 2002a, 2002b, 2002c, 2005).

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  European Disintegration?

  The Politics of Crisis in the European Union

  • Douglas Webber(Author)
  • 2018(Publication Date)
  • Bloomsbury Academic

    (Publisher)

  56 Chapter 3 The Eurozone Crisis Introduction The Eurozone Crisis is the oldest of the EU’s multiple crises. Its debut may be dated from October 2009, when a newly elected Greek government revealed that the government budget deficit that it inherited from its predecessor for that year would amount to 12.7 per cent of GDP rather than 6.7 per cent. During the following years, sovereign debt crises exploded in several other member states on the EU’s southern and western peripheries, including Ire-land, Portugal, Spain and Cyprus, all of which suffered major economic recessions and growth in unemployment. The Eurozone survived these crises. Indeed, in 2018, it had three more member states than the 16 it had in 2009 (Estonia, Latvia and Lithuania). Moreover, it exhibited a higher level of polit-ical integration than in 2009, in as far as a Eurozone-wide bail-out fund, comparable in principle to the International Monetary Fund (IMF), had been created, banking regulation had been shifted from the national to the EU level, and new steps had been taken to coordinate member states’ fiscal policies and restrict their budget deficits. Nonetheless, at several points post-2009, the Eurozone was on the verge of collapsing, at least in its existing composi-tion, most recently in mid-2015, when Greece’s ejection from the Eurozone (‘Grexit’) (once again) became a very real prospect. The threat of a partial, if not complete, collapse of the Eurozone had not necessarily been banished permanently. Even the departing president of the Eurogroup of finance minis-ters, the former Dutch finance minister Jeroen Dijsselbloem, warned in 2018 that the Eurozone was still not ‘shock resilient’ (as quoted in Financial Times 2018a; for similar warnings, see also Enderlein et al. 2016 : 10 and King 2016 : 232–238, 338–347).

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  The Political Economy of the Eurozone

  • Ivano Cardinale, D'Maris Coffman, Roberto Scazzieri(Authors)
  • 2017(Publication Date)
  • Cambridge University Press

    (Publisher)

  In summary, the crisis has highlighted the interdependencies between different economic and political domains, as well as conflicts of interest within and across levels of aggregation (supranational, national, sec- toral). Overall, the crisis has exposed serious internal tensions in the 1 constitution of the Eurozone and the EU as a whole. 1 It has also shown the need to investigate, over and above the inevitable conflicts between political economy actors, which elements of common interest underlie monetary integration. 1.2 The Eurozone as a Political Economy Field This volume studies the Eurozone as a political economy field, by which we mean a system of interdependencies that span the economic and political spheres at different levels of aggregation (e.g. countries, regions, and sectors). The contributions in the volume show features of this field, propose analytical tools to study it, and explore policy frameworks that fit those features. Attention for multiple levels of aggregation has key implications for how the internal differentiation of the Eurozone is understood. In fact, the latter is usually conceptualized in terms of national macroeco- nomies (e.g. ‘Northern’ vs. ‘Southern’ countries). This level of aggrega- tion is associated with specific constraints for policy-making, such as the sustainability of external accounts and sovereign debt. However, exclusive focus on macroeconomies might hide from view other con- straints and possibilities, and especially those which emerge at the sectoral level of aggregation. In particular, economic analysis shows that proportions between sectors must remain within a range that is compatible with the ‘viability’ of the system.

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  European Union Law

  Text and Materials

  • Damian Chalmers, Gareth Davies, Giorgio Monti(Authors)
  • 2014(Publication Date)
  • Cambridge University Press

    (Publisher)

  There are four elements to this template. There is to be, first, free movement of capital between Member States 705 Economic and Monetary Union and between Member States and non-EU states. Secondly, an independent European Central Bank (ECB) is to have the exclusive right to authorise the issue of a single currency, the euro. Thirdly, states commit not to incur excessive government deficits. This is to be policed by a preventive mechanism in which the Council monitors medium-term budgetary policy by states, and a corrective mechanism, the Excessive Deficit Procedure, which allows the sanc- tioning of a Member State for running an excessive deficit. Fourthly, there is to be coordina- tion of economic policy. Section 3 considers the system of differentiated integration brought about by economic and monetary union. From 1 January 2014, eighteen Member States have the euro as the currency. Member States have, however, to meet certain criteria, the Convergence Criteria, before they can participate in the euro. Eight Member States, known as ‘states with a derogation’, have not met these criteria. In addition, Denmark and the United Kingdom have Protocols which allow them not to participate in the euro. Free movement of capital provisions apply to these ten states and they also participate in economic policy coordination. However, they are neither bound by ECB measures nor any Union measure which sanctions national governments in this field of activity for weak economic or fiscal performance. They can, furthermore, neither par- ticipate in ECB decision-making nor in the Euro Group, a group of euro area Finance Ministers who consider coordination of economic policy in relation to the euro. Section 4 considers the effect of the sovereign debt crisis on these institutional arrange- ments. The crisis led to a perception that these arrangements were too rigid, too weak in terms of securing national compliance, and too limited in scope.

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  Routledge Handbook of the Economics of European Integration

  • Harald Badinger, Volker Nitsch, Harald Badinger, Volker Nitsch(Authors)
  • 2015(Publication Date)
  • Routledge

    (Publisher)

  2 The history of european economic and monetary union Harold James DOI: 10.4324/9781315796918-3 1 Introduction Europe’s move to monetary integration with a common currency (the euro) is a quite unique process, and is often held up as a model for monetary cooperation in other parts of the world: in the Gulf region, where there are periodic discussions of monetary unification, as well as in Asia and Latin America, where movements towards greater monetary integration also have some support but encounter a plethora of difficulties. Nevertheless, at the latest by the financial crisis of 2007–8, it became clear that there were substantial design flaws in the concept of the Economic and Monetary Union (EMU). As Patrick Honohan put it: “release 1.0 of the euro was under-designed, and robust only to moderate shocks.” (Honohan 2012) There has always been an ambiguity in the story of monetary integration: was it designed primarily to deal with a technical issue – alternatively formulated as exchange rate volatility as a barrier to trade and thus to greater economic integration, or else as a quest for price stability – or was it part of a grand political plan, in which money was used to tie the European knot? Jacques Rueff (1950), France’s major mid-century thinker about money, coined a phrase that was subsequently often erroneously linked to Jean Monnet: “L’Europe se fera par la monnaie ou ne se fera pas.” In the 1960s, a theory of optimum currency areas was developed by US-based economists (Mundell 1961, McKinnon 1963, Kenen 1969): although they continued to be influential figures in the European debate, their theories were irrelevant to the final push to monetary integration in the 1990s. The states that signed up to economic union had different expectations and hopes: some saw it as a way of building credibility and thus of reducing borrowing costs, while others focused on the constitutionalization of a stable monetary regime

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  The European Union in Crisis

  • Desmond Dinan, Neill Nugent, William E. Paterson(Authors)
  • 2017(Publication Date)
  • Bloomsbury Academic

    (Publisher)

  Scholars of European integration and the actors who forged the early Union were attentive to the challenge of economic divergence in Europe, particularly the Mezzogiorno (the impoverished south of Italy), in the original EU of six member states. That challenge came to the fore as the iterative process of enlargement brought a north-western, Mediterranean and eastern periphery into the Union, beginning with the first enlargement in 1973. In fact, all enlargements, with the exception of the European Free Trade Association (EFTA) enlargement of the mid-1990s, were characterized by new member states whose level of economic development was below that of the core. It was for this reason that the Union developed cohesion policy and a set of related policy instruments.

  The objective of this chapter is to analyse the emergence within the eurozone during the financial and economic crisis of divergence between a eurozone core and periphery. The crisis has been experienced in very different ways depending on whether a state is part of the northern core or the periphery. The second objective of the chapter is to explore the political consequences of this for democratic politics in the eurozone and the wider EU. Finally, the chapter assesses why the politics of redistribution are so difficult in the eurozone and the wider Union. The chapter begins with an overview of the eurozone design as fashioned by the Maastricht Treaty.

  Economic and Monetary Union: A Deliberate Blind Spot

  The achievement of a single currency was for a long time regarded as the ‘holy grail’ of European integration because of its likely impact on the wider dynamic of integration. It was a symbol of a high level of economic integration that would in its wake necessitate deeper political integration. The 1970 Werner Plan set out to map the various elements that would be essential to a complete economic and monetary union: the minimum that should be carried out (Werner, 1970: 9). It pointed out that differences in economic structure would impact on the achievement of an economic equilibrium within the currency zone and flagged that ‘financial measures of compensation’ would alleviate the problems and that ‘regional and structural policies’ would no longer be exclusively within the remit of the member states (Werner, 1970: 11). The 1977 MacDougall Report advocated a much larger EU budget than was the case – a budget of at least 5 per cent of GDP. The 1988 Delors Report on Economic and Monetary Union was explicit in its assertion that the process of integration had been uneven and that ‘[greater]convergence of economic performance is needed

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  Cambridge Yearbook of European Legal Studies Vol 5, 2002-2003

  • John Bell, Alan Dashwood, J R Spencer, Angela Ward, John Bell, Alan Dashwood, J R Spencer, Angela Ward(Authors)
  • 2004(Publication Date)
  • Hart Publishing

    (Publisher)

  Economies of the existing member states are highly integrated and, there-fore, highly interdependent. This means that uncoordinated, conflicting policy approaches, especially by the largest economies, are bound to have a marked effect on other member states. That will happen even if the latter are outside EMU, contrary to expectations of the nationalists that the preservation of an independent, national monetary system would give the countries that opt for such ‘independence’ a significant degree of autonomy in the management of their economies. There is, for instance, growing con-cern in the UK at the moment (2003) that the country’s recent rates of eco-nomic growth and falling unemployment cannot be sustained for much longer. An important reason for this is the expectation that a combination of the constraints on growth imposed by the Stability and Growth Pact and restrictive monetary policy of the European Central Bank will deepen eco-nomic stagnation in the 11 countries that comprise EMU. Given its close economic links with these countries, their slow growth and high unemploy-ment would make it impossible for the UK to avoid a significant deterioration in its own economic performance even if it remained outside the monetary union. In fact, even this example underestimates the overall effect of economic developments in the 11 countries. EMU may be no more than a regional union, but it is a very large regional union—especially when the UK, Denmark and Sweden join it—much larger than comparable monetary unions in the past. Collectively, the 15 countries that comprise the EU are one of the two largest economic entities in the world. In the late 1990s the EU produced 30 per cent of world output compared to the US share of 27 per cent. The United States still had much larger capital markets, but its share of world trade was lower than the EU’s (excluding intra-EU trade): 17 compared to 20 per cent trade.

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  The Political Economy of Italy in the Euro

  Between Credibility and Competitiveness

  • Leila Simona Talani(Author)
  • 2017(Publication Date)
  • Palgrave Macmillan

    (Publisher)

  In J. Caporaso & M. Rhodes (Eds.), The political and economic dynamics of the eurozone crisis. Oxford: Oxford University Press. Chang, M., & Leblond, P. (2015). All in: market expectations of eurozone integrity in the sovereign debt crisis. Review of International Political Economy V, 22(i3), 626–665. Culpepper, P., & Regan, A. (2015). Why don’t governments need trade unions anymore?. The Death of Social Pacts in Ireland and Italy, Transfer: European Review of Labour and Research, 21(2), 131–139. De Grauwe, P. (1996). International money. Oxford: Oxford University Press. De Grauwe, P. (2012). Interview available at http://aregan.wordpress.com/ 2012/03/20/interview-with-paul-de-grauw/, accessed on 18 October 18 2012. De Grauwe, P. (2013). Foreword. In M. Marco (Ed.), The economics of the monetary union and the eurozone crisis. London: Springer. Eichengreen, B. (2014). The eurozone crisis: the theory of optimum currency areas bites back, Notenstien Academy White Paper Series. pp. 1–18. Eichengreen, B., & Frieden, J. (1994). The political economy of European monetary union. Boulder: Westview Press. European Commission. (1990). One market, one money. European economy, 44 October 1990, 347pp. 112 4 THE CRISIS OF THE EUROZONE AS A CRISIS OF COMPETITIVENESS Ferroni, F., & Klaus, B. (2015). Euro area business cycles in turbulent times: convergence or decoupling? European Central Bank, Working Paper Series, No. 1819. June, pp.1–36. Frankel, J., & Rose, A. (1998). The endogeneity of the optimum currency area criteria. The Economic Journal, 108(449) (July 1998), 1009–1025. Frieden, J. (1991). Invested interests: the politics of national economic policies in a world of global finance. International Organization, 45(4), 425–451. Frieden, J. (1994). The impact of goods and capital market integration on European monetary politics. Preliminary version, August. Frieden, J. (1998). The new political economy of EMU. Oxford: Rowman and Littlefield. Gerlach, S., Schulz, A., & Wolf, G.

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  What Global Economic Crisis?

  • P. Arestis, M. Baddeley, J. McCombie, P. Arestis, M. Baddeley, J. McCombie(Authors)
  • 2001(Publication Date)
  • Palgrave Macmillan

    (Publisher)

  Second, the introduction of the euro and the associated institutional setting could well serve to exacerbate tendencies towards financial crisis including the volatility and subsequent collapse of asset prices and runs on the banking system. There may be some additional forces of instability arising from the relationship between the dollar 78 Will the Euro Bring Economic Crisis to Europe? 79 and the euro as two major global currencies and the current trade imbalances. Further, the operating arrangements of the European System of Central Banks (ESCB) can be seen as inadequate to cope with such financial crises. The Institutional Policy Framework The institutional policy framework within which the euro has been introduced and will operate has four key elements. First, the ECB is the only effective federal economic institution. The ECB has the one policy instrument of interest ('repo') rate to pursue the main objective of low inflation.' The Governing Council of the ECB 2 agreed on the main fea- tures of their stability-oriented policy strategy (ECB, 1998). The single monetary policy will have a euro area-wide perspective. The president of the ECB, at a press conference on 13 October 1998, clearly stated that monetary policy 'will not react to specific regional or national developments'. A quantitative definition of price stability was adopted: the annual increase in the Harmonized Index of Consumer Prices (HICP) for the euro area should be less than 2 per cent. This is to be achieved through the policy weapon of the rate of interest, and by announced quantitative reference values for the growth of the broad M3 monetary aggregate set at 4.5 per cent. Being a reference level, there is no mechanistic commitment to correct deviations in the short term, although it is stated that deviations from the reference value would, under normal circumstances, 'signal risks to price stability'.

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  Crucible of Resistance

  Greece, the Eurozone and the World Economic Crisis

  • Christos Laskos, Euclid Tsakalotos(Authors)
  • 2013(Publication Date)
  • Pluto Press

    (Publisher)

  3 The Eurozone Crisis in Context

  Greece’s GDP amounts to about 2 per cent of the EU total; somewhere between Maryland and Indiana in US terms. And yet, from early 2010, Greece was rarely out of the international limelight, with countless European Councils and Eurogroup (finance ministers of the Eurozone) meetings focusing on its plight, but also on other countries that were to join, one after another, the downward spiral of debt and austerity. By 2011 and 2012, the issue had become the fate of the euro itself. It is difficult to believe that similar problems in either Maryland or Indiana could have sparked off such a crisis within the US. But to paraphrase E.H. Carr’s (1961) impatience with accounts that elevate the role of accident in historical explanations, if the Greek crisis was so critical, there must be some underlying reasons for the susceptibility of the Eurozone economy to developments in Greece.

  This chapter deals with this susceptibility and the wider canvas of the world economic crisis that began in 2008 with the financial crash. As hopes waned that the crisis would be overcome fairly swiftly, with what was then known as a V-shaped recovery43 (in other words a sharp recovery following on from the steep fall in economic activity), it became obvious that the levels of world debt acquired during the preceding two decades were well beyond what could be justified by the growth performance. Consequently, people began to look more closely at indebted economies, and financial institutions, that were particularly at risk. They also began to question who would bear the main burden of readjustment.

  It is in this context that long-standing worries about the economic and financial architecture of the Eurozone began to resurface. From before the creation of European monetary union there had been voices expressing considerable scepticism about whether the economies involved constituted an optimal currency area; that is, whether the cost of giving up the policy instrument of the exchange rate was really less than the benefits of adopting a single currency. The concern was accentuated by the fact that the architects had made no provision for a large federal budget, or other institutions for that matter, which could act as a stabilizer for regions doing less well than others, thereby injecting an element of solidarity in to the whole framework. The Greek crisis set such concerns in the sharpest possible focus: did the Eurozone have the commitment and the ability to act speedily to provide a collective solution to the emerging crisis of its periphery?

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  The Euro in the 21st Century

  Economic Crisis and Financial Uproar

  • Maria Lorca-Susino(Author)
  • 2016(Publication Date)
  • Routledge

    (Publisher)

  Strict conditions and a prohibitive price tag must be attached so that aid is only drawn in the case of emergencies that present a threat to the financial stability of the whole euro area … Emergency liquidity aid may never be taken for granted. It must, on principle, still be possible for a state to go bankrupt … The monetary union and the euro are best protected if the Eurozone remains credible and capable of taking action … Yet there is no alternative to monetary union. There are some people who might feel that their skepticism towards the euro has been vindicated. They are overlooking the strengths of Europe … (Schauble 2010, 1).

  However, Germany is firm in the idea that if a Eurozone Member State is unable to maintain its finances and budget within the required targets established in Maastricht, this country should exit the EMU and the euro. Some analysts believe that this will lead to the departure of the Mediterranean countries from the Eurozone. The point is to understand the economic harm that these departing countries could inflict on Germany’s economy and finances. Germany is the second greatest exporter in the world despite the fact that the euro and its industrial niche is focused on the production of high-tech products as well as an extremely well-diversified range of high-end products that range from food to pharmaceuticals, clothes, and services. According to the Fortune 500 survey which is a list of the top 500 companies in the world, Germany has a total of 15 companies in the top 100, while France has ten; Greece has no company included in this list, Spain has three companies and Italy has five in the first 100 companies listed, while Portugal has just one company in this ranking, although it is listed as number 278 (CNN Money 2009).

  Before the introduction of the euro, these Mediterranean countries were hurting Germany with competitive devaluations. Back then, Germany had not positioned its industry to the niche that it enjoys today. However, nowadays, as a result of arduous and continued improvement of its factors of productions and structural reforms to improve its labor force, Germany’s tangible and intangible assets have achieved a product sophistication that is no longer challenged competitively by anything that is produced in Portugal, Spain, Greece, or even, to a lesser extent, Italy and France. If these countries were to exit the Eurozone and reintroduce their old currencies, the fact that they would have to resort to systematic competitive devaluations to gain competitiveness would not hurt Germany this time around. On the contrary, it will become cheaper for Germany to have those European countries as inexpensive second residences or vacation destinations close to home.

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