1. The European Union
and
the EURO

2. European Union 1. What does it mean: - Free Movement of People
- Free Movement of Goods
- Mutual Recognition of National Standards
but also
- Different Cultures
- Different Languages
- National Governments
- National Laws

3. 2. Objectives
- Economic
- Social
- Political
3. Who Participates?

4. EU Member Countries Old Members Austria € Belgium € Denmark Finland €
France €
Germany €
Greece €
Ireland €
Italy €
Luxembourg €
Netherlands €
Portugal €
Spain €
Sweden
UK until 2019?
-New Members
Cyprus €
Czech Republic
Estonia €
Hungary
Latvia
Lithuania
Malta €
Poland
Slovak Republic €
Slovenia €
Rumania
Bulgaria
Croatia
-In Negotiations
Turkey
€ Countries that adopted the EURO

5. EC Institutions European Commission Council of Ministries
European Parliament
European Court of Justice

6. Euro Crisis?

7. EMU 1.What is EMU? 2. How Does it Work?
Acronym for Economic and Monetary Union
2. How Does it Work?
All national currencies of member states convert into the EURO at
an irrevocably fixed rate. The EURO floats freely against
other main currencies (yen, $). National banknotes ceased to
be legal on 1 July 2002.
3. What is the role of the ECB?
The Governing Council of the European Central Bank (ECB) consists
of six executive board members responsible for current business and
the 11 ministers of the National Central banks. The ECB is
responsible for the money supply in Euroland.

8. 4. Does the EMU lead to a loss of sovereignty of its member states?
A nation’s currency symbolizes national autonomy. Monetary policy is a powerful economic instrument, that has an impact on inflation, interest rates, governmental debt, short term unemployment, and economic cycle
5. What are potential benefits of the EMU?
Lower cost of managing cash for companies operating across national borders within Euroland
Elimination of currency risk in Euroland
Lower cost of hedging currency risk between EURO and non-EURO currencies
Bigger markets. Customers will more readily purchase across national boundaries, unimpeded by the complexities of different currencies

9. 6. What happens if the economic cycles in different EMU member states are out of synch?
The exchange rate weapon is ruled out. There is no redistribution
effect of federal taxes (For example: If one part of the U.S. moves
into recession, its tax payments (linked to income and sales) will fall
and federal benefit payments will rise). Adjustments in the EMU
will have to take place through:
- Relocation of workers
- Relocation of businesses
- Change of wages
- Transfer payments between EMU member states

10. Greek Crisis

11. Greek Crisis 1. Timeline of the Crisis
Greece joins currency union in 2001
Low interest rates, low inflation, access to capoital markets
Economic boom financed with cheap money
No currency devaluation to counteract increasing ULC
Domestic businesses are increasingly loosing competitiveness
Hay fire of cheap money is burnt out. Economy is not competitive

12. Increasing Loss of Competitiveness
2018 Numbers

13. Price of bonds falls and interest rate increases.
1. Timeline of the Crisis cont.
Hay fire of cheap money is burnt out. Economy is not competitive
Governmental spending to counteract increasing unemployment, low consumption, and failing companies
Public debt explodes
Investors slowly start to react and buy less Greek bonds and increasingly take out Credit Default Swaps to get insurance against default
Price of bonds falls and interest rate increases.
“Bad” speculators refuse to buy bonds despite skyrocketing interest rates. Price of Credit Default Swaps goes through the roof and markets start to freeze

14. 1. Timeline of the Crisis cont.
Greece receives first (2010) and second bailout (2012) from EU, ECB, and IMF (Troika) worth Euro 250 billion. Conditions of the bailouts were austerity measures and structural reforms.
Greece does not fulfill conditions, runs out of money, and votes for radical left Syriza party
Third bailout (2015) from EU and ECB worth Euro 100 billion. Syriza agrees to more austerity measures and structural reforms.
If Greece were to exit the Euro and default on its debt, ECB and EU would potentially loose more than Euro 600 billion
How Crises and Bailouts Have Changed Greece’s Economy

15. Quasi Permanent Transfer Payments
2. Potential Solutions
Quasi Permanent Transfer Payments
(Model East Germany) Greek economy does not become competitive. Long-term transfer payments (€ 60 billion per year?) are necessary to keep up the standard of living.
Structural Reforms
This is the favorite model by European politicians. Debt relief coupled with severe structural reforms to make the Greek economy more competitive. This would lead to a drastic decrease of the standard of living for years to come.

16. 2. Potential Solutions cont.
Exit the Currency Union
Investors of Greek bonds get a haircut. New currency will be heavily devaluated.
Access to international capital markets is obstructed. High interest rates. Drastic increase of import prices. Temporary decrease of standard of living. Danger of inflation.
Economy becomes competitive. Exports, tourism, and production for domestic consumption increase.
4. ?
The Ghosts of the Debt Crisis Still Haunt Europe

17. Brexit

18. Brexit
On 23 June 2016 citizens of the United Kingdom (UK) voted to leave the European Union (EU)*.
the proposed end date for the transition period in the negotiating directives is 31 December 2020
during the transition period the whole of the EU acquis will continue to apply to the UK as if it were a member state, and any changes to it would also apply in the UK
the UK will remain bound by the obligations stemming from the agreements concluded by the EU, while it will no longer participate in any bodies set up by those agreements
the UK, as already a third country, will no longer participate in the institutions and the decision-making of the EU *

19. Brexit Potential reasons for the British decision to leave the EU:
Euro
Bailouts
Banking Regulations
Populism
Immigration

20. Brexit
Potential reasons for the British decision to leave the EU cont.):
Refugee Crisis
How Europe's refugee crisis developed in 2016
Italy has caused a MELTDOWN' 700,000 migrants waiting to cross into Europe from Libya

21. Brexit
The Irish question is a major roadblock for a Brexit deal allowing a soft landing.

22. Brexit Why is there are border between Ireland and Northern Ireland?
Britain declares control over Kingdome of Ireland in 1548.
Peace agreement of 1921: Island was partitioned between the U.K. government and Irish rebels seeking independence.
Most of the residents in Northern Ireland are Protestant. The rest of the island is predominantly Catholic.
The Irish republic became independent in 1948
The Troubles: Loyalists (mostly Protestant) wanted to stay with Britain; Nationalists (mostly Catholic) wanted to reunite Ireland. Conflict claimed more than 3,500 lives.
Good Friday Agreement of 1998 mainly ends violence.
Religious segregation and discrimination are still unresolved social issues and continue to cause sporadic violence

23. Brexit The Irish Question*:
Only land crossing between Britain and the Republic of Ireland
Cross border of more than Euro 3 Billion
30,000 people pass through 300 different crossings every day
Diageo Plc, the maker of Guinness, has brewing operations on both sides of the border and sends its trucks across about 18,000 times a year.
The border has been a symbol of British rule almost since it was created, with customs and later military checkpoints positioned at crossings over the course of decades. *