Module 3: European Union

Lesson Title

The Euro:
o How the Euro was created, Economic and Monetary Policy since 2008

 

Introduction

In this lesson, students will learn why eurozone was created, what good it bring to the Europe, how to join the eurozone, how euro helped survive the crisis and what was the aftermath of the crisis.

 

Lesson time foreseen

40 minutes = 1 lesson

 

Lesson Content

Why EURO?
 
The euro and the Economic and Monetary Union - EMU aim to allow our economies to function more efficiently and effectively, ultimately offering Europeans more jobs and greater prosperity.
 
What do citizens get from it?
• More choice, better prices
• Cross-border shopping is simply easier!
• A stable currency
• Cheaper and easier travel
• Economic stability encourages long-term planning
• Lower risks and reduced costs encourage cross-border trade and investments
 
Steps to the EURO:

1957 - Preparing the future of our common market
The foundation of the European Economic Community back m 1957 saw the birth of a common market and the beginning of European integration. It allowed for goods. people. services and capital to move ever more freely between Member States. without barriers
 
1992 - The common market becomes a reality
As exchange and movement across Europe became more common. It became clear that the single market was restricted by the many currencies in circulation. How could we break this additional barrier to Integration? In 1992. the Maastncht Treaty decided that Euro would have a strong and stable single currency for the 21st century.
 
1999 - The euro is launched as a 'virtual' currency.
 
2002 - The euro comes to life
On 1 January 2002, euro banknotes and coins entered our bank tills, cash registers, purses and pockets. Since then, the euro area has grown. bringing tangible benefits to an ever-increasing
number of citizens and businesses. The enlargement of the euro area is an ongoing and dynamic
process.
 
TODAY - Keeping the euro on track
There have always been criteria and rules in place to bring stability and harmony to the euro area economy. However, in response to some weak spots highlighted during the crisis, they have been strengthened to form the new EU economic governance framework which enforces the rules to help struggling euro area countries get back on track and avoid similar problems in the future.
 
About the EURO
• Symbol: €
• The symbol of the euro is €.
• The design of euro banknotes is common to all euro area Member States.
• Various security features have been incorporated into the euro banknotes. Have a good look at
• them to check for yourself!
• Euro coins have a uniform design on one side and a country-specific design on the other.
 
Benefits of EURO
• a stable currency
• low inflation and lower interest rates
• price transparency
• elimination of currency exchange costs
• more integrated financial markets with adequate regulation and supervision
• a better performing economy
• a framework for sounder public finances
• a stronger voice for the EU in the global economy
• greater ease of international trade
• a tangible symbol of European identity
 
The Eurogroup
The Eurogroup consists of the finance ministers from the euro area countries. They meet to coordinate their economic policies and to monitor their countries’ budgetary and financial policies. The Eurogroup also represents the euro’s interests in international forums. In January 2013, the Dutch finance minister, Jeroen Dijsselbloem, was elected President of the Eurogroup and re-elected in July 2015 to serve a second term.
 
Who has EURO as official currency?
The euro is the sole currency of 19 EU member states: Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia, and Spain.
 
How to join the EURO area?
• Price stability: the rate of inflation may not exceed by more than 1.5 percentage points the average rates of inflation of the three Member States with the lowest inflation.
• Interest rates: long-term interest rates may not vary by more than 2 percentage points in relation to the average interest rates of the three Member States with the lowest interest rates.
• Deficits: national budget deficits must be below 3 % of GDP.
• Public debt: this may not exceed 60 % of GDP.
• Exchange rate stability: exchange rates must have remained within the authorised margin of fluctuation for the previous 2 years.
 
The euro around the world
You might be surprised to learn just how well-travelled the euro is' It is used in the Caribbean (Guadeloupe, Martinique and Saint-Barthelemy), in the Indian Ocean (Mayotte and Reunion) and the Atlantic Ocean (Azores. Canaries. Madeira and Saint Pierre and Miquelon) as well as in Ceuta and Melilla on the north coast of Africa and French Guiana in South America. It is also used in Monaco. San Marino. the Vatican City and Andorra as the national currency, and in Kosovo and Montenegro as the de facto currency.
 
Effects of a crisis
The 2008 financial crisis considerably increased public debt in most EU countries. The euro shielded the most vulnerable economies from the risk of devaluation as they endured the crisis and faced attacks by speculators on the global financial markets.
 
At the start of the crisis, many banks ran into trouble leading them to be bailed out by national governments, thereby increasing public debt. Attention subsequently turned to government debt, as some heavily indebted countries with worsening budget deficits were particularly targeted during the winter of 2009-2010. It was for this reason that EU leaders set up the ‘European Stability Mechanism’. This ‘firewall’ has a lending capacity of €500 billion in funds guaranteed by the euro countries, and is used to safeguard financial stability in the euro area. Between 2010 and 2013, five countries (Cyprus, Greece, Ireland, Portugal and Spain) made agreements with the various EU bodies and the International Monetary Fund for financial assistance. The agreements were adapted to the situation in each country, but typically included reforms to improve public sector efficiency in the respective countries. By the end of 2013 Ireland was the first country to successfully complete the agreed economic adjustment programme and to begin again to borrow money directly on the capital markets. Portugal and Spain also improved their situation and EU assistance to them ended in 2014. Cyprus followed in 2016. Greece, on the other hand, has found it more difficult to implement structural reforms to its economy — reforms such as streamlining the public sector, privatisations and creation of sustainable pension systems. These reforms were agreed in the context of two assistance programmes in 2010 and 2014. They were financed by the EU, the European Central Bank and the International Monetary Fund to a total value of €226 billion. Long and complex negotiations were needed before a third agreement was reached in July 2015, based on a firm commitment by the Greek government to implement policies aimed at improving its public finances and to reforming its economy.
 
As part of the response to the crisis, the EU Member States and institutions also brought into play provisions of the Treaty of Lisbon designed to strengthen the EU’s economic governance. In a process entitled the ‘European semester’, Member States are obliged, in October of each year, to present the Commission with their draft budgets for the following year. If necessary, they then have to adjust them in the light of the Commission’s observations on any further action required to achieve the previously agreed common goals. Prior discussion of national budget plans, monitoring national economies and tightening the rules on competitiveness, with sanctions to be applied if countries breach the financial rules, increasingly constitute the basis for an economic and monetary governance of the euro area. Thus, in response to global financial and economic change, the EU has to take stronger action to ensure that Member States manage their budgets responsibly and support one another financially. This is the only way to ensure that the euro remains credible as a single currency and that the Member States can, together, face the economic challenges of globalisation. Both the Commission and European Parliament stress the importance of coordinating national economic and social policies, since — in the long run — Europe’s common currency is not viable without some form of common economic governance.
 
In September 2015, Commission President Jean-Claude Juncker presented his proposals on how to strengthen the euro area. They were based on a report drawn up by the five Presidents of the EU institutions dealing with the euro. The plan comprises a common system to guarantee bank deposits; a single representative of the euro area in global financial institutions such as the International Monetary Fund and the World Bank; a more democratic and efficient system to monitor national budgets; coordination of fiscal policy; and a base for social protection and labour market rules. In the end, this might mean the creation of a common treasury for the euro area. The European Central Bank now considers it part of its mandate to assist with the revival of the economy. In 2015 the Bank launched the so-called ‘quantitative easing’, whereby the Bank buys debt, mainly public, in order to stimulate the economy. This reduces the interest rate, which favours investment and eases public debt. It also lowers the exchange rate of the euro in relation to other currencies, which is good for European exports.
 
 

Sources:

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