We think you have liked this presentation. If you wish to download it, please recommend it to your friends in any social system. Share buttons are a little bit lower. Thank you!
Presentation is loading. Please wait.
Published byAshanti Roffe
Modified over 2 years ago
© Baldwin&Wyplosz 2009 The Economics of European Integration, 3 rd Edition Chapter 17
© Baldwin&Wyplosz 2009 The Economics of European Integration, 3 rd Edition Chapter 17 The European Monetary Union 2
© Baldwin&Wyplosz 2009 The Economics of European Integration, 3 rd Edition The Long Road to Maastricht and to the Euro 3 On 13 July 2010 the Council of the European Union approved Estonias request to join the euro area on 1 January 2011. Estonia duly joined the euro area on that date and the euro replaced the kroon at a fixed conversion rate of 1 = EEK 15.6466. There will be a two-week period when both currencies are in circulation, with change normally provided in euro.
© Baldwin&Wyplosz 2009 The Economics of European Integration, 3 rd Edition The Maastricht Treaty A firm commitment to launch the single currency by January 1999 at the latest. A list of five criteria for admission to the monetary union. A precise specification of central banking institutions. Additional conditions mentioned (e.g. the excessive deficit procedure). 4
© Baldwin&Wyplosz 2009 The Economics of European Integration, 3 rd Edition The Maastricht Convergence Criteria Inflation: –not to exceed by more than 1.5 per cent the average of the three lowest inflation 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. ERM membership: –at least two years in ERM without being forced to devalue. Budget deficit: –deficit less than 3 per cent of GDP. Public debt: –debt less than 60 per cent of GDP: Note: Observed on 1997 performance for decision in 1998. 5
© Baldwin&Wyplosz 2009 The Economics of European Integration, 3 rd Edition Convergence Criteria: Inflation convergence 6
© Baldwin&Wyplosz 2009 The Economics of European Integration, 3 rd Edition Convergence Criteria Long-Term Interest Rate: easy to bring inflation down in 1997 and then let go again. ERM Membership: need to convince the exchange markets. Historically, all big inflation episodes born out of runaway public deficits and debts. Hence requirement that house is put in order before admission. Problem No. 1: –a few years of budgetary discipline do not guarantee long-term discipline Problem No. 2: articifial ceilings. 7
© Baldwin&Wyplosz 2009 The Economics of European Integration, 3 rd Edition Debt and Deficit in 1998 8
© Baldwin&Wyplosz 2009 The Economics of European Integration, 3 rd Edition Architecture of the monetary union 9
© Baldwin&Wyplosz 2009 The Economics of European Integration, 3 rd Edition A Tour of the Acronyms N countries with N National Central Banks (NCBs) that continue operating but with no monetary policy function. A new central bank at the centre: the European Central Bank (ECB). New Governor Mario Draghi (Super Mario in Italy) from November 2011 The European System of Central Banks (ESCB): the ECB and all EU NCBs (N=27). The Eurosystem: 11 countries made up the euro area when the euro was introduced in 1999. There are now 17 members, the newest being Estonia, Slovakia, Cyprus and Malta. 10
© Baldwin&Wyplosz 2009 The Economics of European Integration, 3 rd Edition How Does the Eurosystem Operate? Objectives: –What is it trying to achieve? Instruments: –What are the means available? Strategy: –How is the system formulating its actions? 11
© Baldwin&Wyplosz 2009 The Economics of European Integration, 3 rd Edition Objectives The Maastricht Treatys Art. 105.1: The primary objective of the ESCB shall be to maintain price stability. Without prejudice to the objective of price stability, the ESCB shall support the general economic policies in the Community […]. In the pursuit of price stability, the ECB aims at maintaining inflation rates below, but close to, 2% over the medium term. Article 2. The objectives of European Union are a high level of employment and sustainable and non-inflationary growth. 12
© Baldwin&Wyplosz 2009 The Economics of European Integration, 3 rd Edition Scope of monetary policy ECB Long-run neutrality of money It is widely agreed that in the long run – after all adjustments in the economy have worked through – a change in the quantity of money in the economy will be reflected in a change in the general level of prices. But it will not induce permanent changes in real variables such as real output or unemployment. This general principle, referred to as "the long-run neutrality of money", underlies all standard macroeconomic thinking. Real income or the level of employment are, in the long term, essentially determined by real factors, such as technology, population growth or the preferences of economic agents. Inflation – a monetary phenomenon In the long run a central bank can only contribute to raising the growth potential of the economy by maintaining an environment of stable prices. It cannot enhance economic growth by expanding the money supply or keeping short-term interest rates at a level inconsistent with price stability. It can only influence the general level of prices. 13
© Baldwin&Wyplosz 2009 The Economics of European Integration, 3 rd Edition Inflation record 14
© Baldwin&Wyplosz 2009 The Economics of European Integration, 3 rd Edition Instruments The Euro OverNight Index Average (Eonia) is the overnight reference rate in the Euro zone 15
© Baldwin&Wyplosz 2009 The Economics of European Integration, 3 rd Edition Independence and Accountability Arguments for central bank independence: –governments tend not to resist to the printing press temptation –the Bundesbank has set an example. But misbehaving governments are eventually punished by voters. Independence removes central banks from such pressure. A democratic deficit? 16
© Baldwin&Wyplosz 2009 The Economics of European Integration, 3 rd Edition Redressing the Democratic Deficit In return for their independence, central banks must be held accountable: –to the public –to elected representatives. Example: the Bank of England is given an inflation target by the Chancellor. It is free to decide how to meet the target, but must explain its failures (the letter) 17
© Baldwin&Wyplosz 2009 The Economics of European Integration, 3 rd Edition Independence and Transparency 18
© Baldwin&Wyplosz 2009 The Economics of European Integration, 3 rd Edition Chapter 17 1.
© Baldwin&Wyplosz 2009 The Economics of European Integration, 3 rd Edition Chapter 17.
© Baldwin & Wyplosz 2006 Chapter 17 The European Monetary Union.
© Baldwin&Wyplosz The Economics of European Integration Chapter 14: The European Monetary Union.
Feb Lesson 6 By John Kennes International Monetary Economics.
© The McGraw-Hill Companies, 2012 Chapter 16: The European monetary union A normal central bank is a monopolist. Today’s Eurosystem is, instead, an archipelago.
The Eurosystems’ monetary policy strategy Maarten Hendrikx Economics & Research Division Monetary Policy Department Operational Monetary Policy Seminar.
Preparing for euro adoption Anatoli Annenkov Principal Economist Directorate Economic Developments 12 October 2006 The views expressed in this presentation.
Used by 17 of 27 countries Used for all payments starting in 2002 Should be used by all countries once they join THE EURO.
HOW THE EUROPEAN SINGLE CURRENCY EVOLVED By Adam Dangelmayr & Ibrahim Kekec.
MONETARY POLICY Valanta Milliou l.
The European Central Bank An introduction to central banking in the EU Alwin Korthof, Universitat de Valencia, EU Economy, March 2008.
Chapter 16 Money, Banking, and Financial Markets: The Structure of Central Banks: The Bank of Canada, the Federal Reserve, and the European Central Bank.
Theoretical background and euro facts. Elements Theoretical background to monetary unions The Euro Performance The Euro and the UK The Euro and new EU.
MINISTRY OF FINANCE Rauno Niinimäki /1 Finnish experiences of EU and EMU The annual meeting of The Icelandic Travel Industry Association Reykjavik.
The Response of Europe to the Collapse of Bretton Woods From the EMS to the EMU.
Pablo Javier Mayordomo Signes European Union Economics.
Slovak University of Agriculture Faculty of Economics and Management History of the Economic and Monetary Union, ESCB and ECB 2007/2008 Class 2 MPA Ivana.
Background information on the euro and euro area The euro banknotes and coins were introduced on 1 January 2002, after a transitional period of three years.
© The McGraw-Hill Companies, 2008 Chapter 34 Exchange rate regimes David Begg, Stanley Fischer and Rudiger Dornbusch, Economics, 9th Edition, McGraw-Hill,
Macroeconomics Basics. What is macroeconomics? Seeks to understand changes in The rate of economic growth The rate of inflation Unemployment Trade.
The European Monetary Union Stanley W. Black University of North Carolina References:
European Monetary Union. Evolution of the EU 1951: European European Steel and Coal Community. 1957: European Economic Community, the ‘Common Market’
© The McGraw-Hill Companies, The classical model of macroeconomics The CLASSICAL model of macroeconomics is the polar opposite of the extreme Keynesian.
The pros, the cons and a little background on the creation of the euro MONETARY INTEGRATION.
The EMS and the Euro. EMU Adopted by the Treaty on European Union of 1992 (The Maastricht Treaty) EMU designates the zone of countries within the EU which.
Wirtschaftliche Integration Europas Der Vertrag von Maastricht und die Konvergenzkriterien Wirtschaftliche Integration und nationalstaatliche Interessen.
Exchange Rate Regimes. Fixed Exchange Rates and the Adjustment of the Real Exchange Rate In the medium run, the economy reaches the same real exchange.
Chapter 5 Policy Makers and the Money Supply © 2011 John Wiley and Sons.
Economic Experience and Crisis in the Euro Zone Carlos Hurtado* The Restructuring and Resolution of External Sovereign Debt World Bank. Annual Law, Justice.
4. The Euro Area Enlargement. 2 The Euro Area Enlargement The new Member States are large in population but are small in economic terms 2003 Population.
Type author names here © Oxford University Press, All rights reserved. Economics of Monetary Union 10e Chapter 7: The Transition to a Monetary Union.
Since 1 January 1999 the European Central Bank (ECB) has been responsible for conducting monetary policy for the euro area - the world’s largest economy.
European Union and Economic and Monetary Union Readings: 20.
1 MACROECONOMICS AND THE GLOBAL BUSINESS ENVIRONMENT Monetary Policy 2 nd edition.
E UROPEAN C ENTRAL B ANK W ORLD B ANK I NTERNATIONAL M ONETARY FUND E UROPEAN I NVESTMENT B ANK Miroslava Švábová Kristýna Nevolová.
Slide 20-1Copyright © 2003 Pearson Education, Inc. European Union countries have progressively narrowed the fluctuations of their currencies against.
© 2003 Prentice Hall Business PublishingMacroeconomics, 3/eOlivier Blanchard Prepared by: Fernando Quijano and Yvonn Quijano 21 C H A P T E R Exchange.
Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Chapter 20 Money Growth, Money Demand, and Monetary Policy.
Dr Marek Porzycki Chair for Economic Policy. Euro area quantitative easing – ECB announcement of an expanded asset purchase programme, 22 January 2015.
Slides prepared by Thomas Bishop, edited by Mishelle Segui Copyright © 2009 Pearson Addison-Wesley. All rights reserved. Chapter 14 Money, Interest Rates,
The Euro by Carlos Rios n History n Implementation –criteria –phases n Regulation –ECB n Advantages/Risks.
The International Monetary System International Finance Dr. A. DeMaskey.
Fixed and Floating Exchange Rates A2 Economics PowerPoint Briefings 2006 tutor2u ™
Special Topics in Economics Econ. 491 Chapter 5: Convergence Criteria.
EMU and the euro... (for dummies?) Presentation by Nigel Nagarajan Faculty Orientation for the 2009 Euro Challenge New York, November 25 th 2008 The 2009.
Successes of the single market program, the EMS and the economic convergence created a favorable economic and political climate for the establishment of.
The ECBs Monetary Policy Strategy and the Euro Area Enlargement Massimo Rostagno European Central Bank The views expressed in this presentation are those.
European Union An emerging political system? , EU enlargement Romania and Bulgaria joined the EU Now the EU includes 27 countries.
Dr Marek Porzycki Chair for Economic Policy. Treaty provisions on the euro Euro regulations Derogation and adoption of the euro Opt-out Convergence.
© 2017 SlidePlayer.com Inc. All rights reserved.