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Wirtschaftliche Integration Europas Der Vertrag von Maastricht und die Konvergenzkriterien Wirtschaftliche Integration und nationalstaatliche Interessen Mc, June 2008 Lisbon Treaty • • • • • • A politician chosen to be president of the European Council for two-and-ahalf years, replacing the current system where countries take turns at being president for six months A new post combining the jobs of the existing foreign affairs supremo, Javier Solana, and the external affairs commissioner, Benita Ferrero-Waldner, to give the EU more clout on the world stage A smaller European Commission, with fewer commissioners than there are member states, from 2014 A redistribution of voting weights between the member states, phased in between 2014 and 2017 - qualified majority voting based on a "double majority" of 55% of member states, accounting for 65% of the EU's population New powers for the European Commission, European Parliament and European Court of Justice, for example in the field of justice and home affairs Removal of national vetoes in a number of areas. Questions • Why did Germany and other countries decide to give up their national currency? • What are the costs and advantages of adopting a common currency? • Is it optimal for Europe to have a single currency? Göteburg 2003 The European Union Fourth enlargement 2004 1995 Third enlargement 1995: Austria, Finland, Norway and Sweden admitted (Norwegians again vote no). 1973 2004-2007 1958 Cyprus 1986 1981 Malta Current State The European Union (EU) and the Eurozone: 27 members in EU and 15 members in the Eurozone excluding U.K., Sweden and Denmark. 27 members are Germany, France, Italy, Belgium, Netherlands, Luxembourg, Ireland, UK, Denmark, Greece, Portugal, Spain, Austria, Finland, Sweden, Czech Rep., Estonia, Hungary, Poland, Slovenia, Latvia, Lithuania, Slovak Rep., Cyprus, Malta, Bulgaria (2007), Romania (2007). • Hence, there are currently 15 European Monetary Union (EMU) members, Denmark and the UK negotiated opt-out clauses while Sweden postponed entry into the Euroland. Slovenia adopted the Euro on January 1st, 2007 and Malta and Cyprus on 2008. • 3 countries in the pre-accession state: These are Croatia, Turkey and Macedonia. European Economic and Monetary Union (EMU, informal: “Eurozone”) Belgien Deutschland Irland Griechenland Spanien Frankreich Italien Zypern Luxemburg Malta Niederlande Österreich Portugal Slowenien Finnland The Euro: A Short Story • The EMU was established under the Maastricht Treaty (signed 1992). • In January 1999, parities between the currencies of 11 countries and the Euro were “irrevocably” fixed. Notes and coins were introduced on 1 January 2002. • The new European Central Bank (ECB), based in Frankfurt, became responsible for monetary policy for the Euro area. The Treaty of Maastricht The Treaty of Maastricht • The main economic element of the Treaty of Maastricht was a firm commitment to launch a single currency by January 1999. • Its key provisions regarding EMU were – A list of five criteria for admission to the monetary union (the ‘convergence criteria’) – A precise specification of central banking institutions – Additional conditions mentioned (e.g. the excessive deficit procedure) The Convergence Criteria • Inflation: not to exceed by more than 1.5 per cent the average of the three lowest rates among EU countries • Long-term interest rate: not to exceed by more than 2 per cent the average interest rate in the three lowest inflation countries • Budget deficit: deficit less than 3 per cent of GDP • Public debt: debt less than 60 per cent of GDP • These criteria had to be fulfilled in 1998 (the last year before admission) The Convergence Criteria • The overarching aim of the convergence criteria was to ensure long-run price stability, i.e. low inflation – Partly due to insight that inflation is bad for economic welfare – Partly due to German pressure to emulate the Bundesbank • Inflation: the most straightforward criterion but … – Countries could artificially lower their rate of inflation for just one year (1998) – So how to guarantee a permanently low rate of inflation? – This is were the other criteria come in. Economic Policy in the Euro Zone Based on articles of the Maastricht Treaty the Stability and Growth Pact (SGP) in 1997 aims at fiscal discipline: Member states adopting the euro have to meet the Maastricht convergence criteria, and the SGP ensures that they continue to observe them: • The medium-term budgetary objective of positions close to balance or in surplus • A timetable for the imposition of financial penalties on counties that fail to correct situations of “excessive” deficits and debt promptly enough Benefits and Costs of a Common Currency Benefits • Elimination of Transaction Costs • Reduction in Price Discrimination • Reduction in Foreign Exchange Rate Variability Costs A nation gives up its freedom to set its own monetary policy: interest rates, external value of its currency (exchange rate)