IP 325 European Integration ZS 2011/2012 November 16, 2011

EFSF European Financial Stability Facility (EFSF) is a special purpose vehicle financed by members of the eurozone to combat the European sovereign debt crisis. It was agreed by the 27 member states of the European Union on 9 May 2010, aiming at preserving financial stability in Europe. EFSF is headquartered in Luxembourg City, and the European Investment Bank provides treasury management services and administrative support to it through a service level contract. 2

EFSF - 1 The Facility can only act after a support request is made by a euro area member state and a country program has been negotiated with the European Commission and the IMF and after such a program has been unanimously accepted by the Eurogroup (euro area finance ministers) and a memorandum of understanding is signed. This would only occur when the country is unable to borrow on markets at acceptable rates. The Facility aimed for ratings agencies to assign a AAA rating to its bonds, which would be eligible for European Central Bank refinancing operations. 3

Free Trade Area Free trade area (FTA) is a trade bloc whose member countries have signed a free trade agreement (FTA), which eliminates tariffs, import quotas, and preferences on most goods and services traded between them; members of a free trade area do not have a common external tariff, which means they have different quotas and customs, as well as other policies with respect to non-members; The aim of a free trade area is to reduce barriers to exchange so that trade can grow as a result of specialisation, division of labour, and most importantly via comparative advantage. 4

Customs Union Definition: An international association organized to eliminate customs restrictions on goods exchanged between member nations and to establish a uniform tariff policy toward nonmember nations. customs union is a type of trade bloc which is composed of a free trade area with a common external tariff; participant countries set up common external trade policy; purposes for establishing a customs union normally include increasing economic efficiency and establishing closer political and cultural ties between the member countries. 5

Common Market Common Market (sometimes known as the Single Market or EU Internal Market) seeks to guarantee the free movement of goods, capital, services and people; it is intended to be conducive to increased competition, increased specialization, larger economies of scale, allows goods and factors of production to move to the area where they are most valued, thus improving the efficiency of the allocation of resources; in 1997 the Amsterdam Treaty abolished physical barriers across the internal market by incorporating the Schengen Area - the abolition of border controls between most member states. 6

Free movement of goods The European Union is also a customs union. This means that member states have removed customs barriers between themselves and introduced a common customs policy towards other countries; once a good has been imported into the EU from a third country and the appropriate customs duty paid, it shall then be considered to be in free circulation between the member states; charges having equivalent effect as customs duties are also prohibited. 7

Free movement of capital Free movement of capital is intended to permit movement of investments such as property purchases and buying of shares between countries; capital within the EU may be transferred in any amount from one country to another; all intra-EU transfers in euro are considered as domestic payments and bear the corresponding domestic transfer costs; this includes all member States of the EU, even those outside the Eurozone, providing the transactions are carried out in euro. 8

Free movement of services Free movement of services and of establishment allows self- employed persons to move between member states in order to provide services on a temporary or permanent basis; services account for between sixty and seventy percent of EU GDP; however, legislation in the area is not as developed as in other areas; services move across the border; the provider moves or the service itself moves (e.g. an internet purchase). 9

Free movement of services - 1 Services are distinguished from freedom of establishment based on their temporary rather than permanent nature and from free movement of workers based on the fact that the freedom affects corporate entities and individuals outside of the relationship of employment; freedom of establishment shall include the right to take up and pursue activities as self-employed persons and to set up and manage undertakings, in particular companies or firms; the right of establishment is granted both to natural and legal persons. 10

Freedom of movement of people Free movement of people means EU citizens can move freely between member states to live, work, study or retire in another country; the main provision of the freedom of movement of persons prohibits restrictions on the basis of nationality; free movement of workers - right to move to a different member state, to look for work and be employed under the same conditions as nationals of that state; free movement for the non-economically active. 11

Schengen Area All EU member state excluding Bulgaria, Cyprus, Ireland, Romania and the United Kingdom, and three non-members— Iceland, Norway, and Switzerland—have abolished physical barriers by eliminating border controls; implementing the Schengen rules involves eliminating border controls with other Schengen members while simultaneously strengthening border controls with non-member states. The rules include provisions on a common policy on the temporary entry of persons (including the Schengen visa), the harmonisation of external border controls, and cross-border police and judicial co-operation. 12

Economic and Monetary Union An economic and monetary union (EMU) is a type of trade bloc which is composed of an economic union (common market and customs union) with a monetary union; EMU is an intermediate step between a complete economic integration and the fiscal union; in Europe it is a term for policies aimed at converging the economies of members of the European Union in three stages so as to allow them to adopt a single currency, the euro. As such, it is largely synonymous with the eurozone; 13

Economic and Monetary Union - 1 All member states of the European Union are expected to participate in the EMU; Copenhagen criteria - contains the requirements that need to be fulfilled and the time framework within which this must be done in order for a country to join the monetary union; European Exchange Rate Mechanism ("ERM II"), improves stability of currencies, and allows for gaining an evaluation mechanism for potential Eurozone members; all EU member states, except Denmark and the United Kingdom, have committed themselves by treaty to join EMU. 14

Stage One of EMU implementation 1 July 1990 to 31 December 1993: on 1 July 1990, exchange controls were abolished, thus capital movements were completely liberalised; the Treaty of Maastricht in 1992 established the completion of the EMU as a formal objective and sets a number of economic convergence criteria, concerning the inflation rate, public finances, interest rates and exchange rate stability; the treaty entered into force on the 1 November

Stage Two of EMU implementation 1 January 1994 to 31 December 1998: The European Monetary Institute (operating between 1994 and 1997) was established as the forerunner of the European Central Bank, with the task of strengthening monetary cooperation between the member states and their national banks, as well as supervising ECU accounts. new exchange rate mechanism (ERM II) is set up to provide stability above the euro and the national currencies of countries that have not yet entered the eurozone. 16

Stage Three of EMU implementation 1 January 1999 and continuing: from the start of 1999, the euro became a real currency single monetary policy was introduced under the authority of the ECB three-year transition period began before the introduction of actual euro notes and coins euro notes and coins were introduced in January 2002 on 1 January 2007, Slovenia, on 1 January 2008, Cyprus and Malta, on 1 January 2009, Slovakia and on 1 January 2011, Estonia joins the third stage of the EMU. 17

Stability and Growth Pact Stability and Growth Pact (SGP) is an agreement among the 17 Member states of the European Union that take part in the Eurozone to facilitate and maintain the stability of the Economic and Monetary Union; it consists of fiscal monitoring of members by the European Commission and the Council of Ministers and, after multiple warnings, sanctions against offending members; the pact was adopted in 1997 and member states adopting the euro had to meet the Maastricht convergence criteria, and the SGP should ensure that they continue to observe them. 18

Euro Plus Pact Euro-Plus Pact is a 2011 plan in which the member states of the European Union make concrete commitments to a list of political reforms which are intended to improve the fiscal strength and competitiveness of each country; the plan was advocated by the French and German governments for more widespread adoption by other Eurozone countries; tax policy coordination: Developing a common corporate tax base could be a revenue neutral way forward to ensure consistency among national tax systems while respecting national tax strategies, and to contribute to fiscal sustainability and the competitiveness of European businesses. 19