European Economic Policy

Industrial Policy - Commission Strategy

1) competitiveness policy 2) improve access to financing 3) strengthening the single market and enforcing intellectual property rights 4) ensuring access to raw materials 5) boost investments

Roles of EU Parliament

1) debating and passing EU laws with council 2) analyzing EU institution budgets, especially commission 3) debating & adopting EU's budget, with the council

Treaty of Maastricht

"Treaty on European Union". 1)The European communities 2)common foreign and security policy 3)police and judicial cooperation in criminal matters. Established single currency (economic monetary union/EMU)

Monti's Report

"new strategy for the single market". recommended re-launch of internal market by tackling the bottlenecks and new frontiers of internal market.

Cassis de Dijon case law

"principle of mutual recognition" Member states must accept products lawfully excepted in another member state.

Industrial Policy Problems

- low productivity - 3.5 million jobs lost since 2008 - low competitiveness/diversification (comp adv?) - difficult access to raw materials

Industrial Policy Facts

-1/4 private jobs in the EU are in manufacturing industry - at least 1 of the other 3 depend on the industry - accounts for 80% of EU's exports.

EU 2020 Targets

-75% of population (20-64) employed - 3% of EU GDP invested in R&D - school dropouts under 10% -40% of young generation with tertiary degrees -20 million less people at risk of poverty

Six Pack - Stronger corrective action

reinforced through SGP. 1) member states with debt > 60% of GDP should reduce debt at rate of 1/20 per year 2) a non-interest deposit of .2% of GDP may be requested from a euro country placed in EDP (Excessive deficit plan)

European Commission

represents & upholds interest of the whole EU. 28 members (from each member state), 5 year terms

European Council

sets guidelines for EU policies on complex/sensitive issues, no power to pass laws, meets twice every 6 months

Use of Euro in non-EU countries

some candidate countries (korsovo, Montenegro) , others (microstates, French colonies etc.)

European Monetary System

started March 1979. 3 elements: 1) a currency basket (European Currency Unit ECU) 2) A monetary stabilization mechanism (Exchange rate mechanism ERM) 3) a mechanism for financing monetary interventions (European monetary co-operation fund FECOM)

Primary Law

supreme source of law, prevails over all other sources of law. (EU laws superior to national laws). Consists mainly of treaties of the EU

Six Pack - Stronger preventative action

through the Stability and Growth Pact. 1) member states are required to make significant progress towards medium-term budget objectives. 2) expenditure benchmarks now used with structural budget balance to assess adjustments to objectives 3) a non-interest deposit of .2% of GDP imposed on non-compliant countries.

Lamfalussy Process

to develop regulations mainly for the financial service sector. level 1) EU parliament and council adopt legislation, establish framework Level 2) sector-specific committees and regulators advise on technical details Level 3)national regulators work on coordinating new regulations with other nations Level 4) compliance and enforcement

ECOFIN Responsibilities

Covers EU policy for coordination, economic surveillance, member state budgetary policy and public finances. Decisions by qualified majority, except for fiscal matters which are unanimous. Prepares and adopts every year, with parliament, the EU budget.

The EFC

Economic and Financial Committee. The member states, commission and ECB each appoint no more than 2 members. (One from the national admin and one from the national central bank) No capacity to make decisions.

EU Institutions

European Council, European Parliament, Council of Minsters, European Commission, Court of Justice, Court of Auditors, Economic and Social Committee, Committee of Regions, European Investment Bank, Agencies, European Central Bank

ERM 2

provides framework for exchange rate policy cooperation between euro area and non-euro member states. Voluntary membership, states expected to join. Currencies allowed to float within 15% of the euro.

IMF - Actions

reduce poverty working with World bank etc. Issues an international reserve asset, special drawing rights (SDR) which can supply reserve to member countries. Valued on 4 key currencies (dollar, yen, euro, pounds)

Optimal Monetary Area

"A region in which the benefits of forming a monetary union outweigh the costs". The more asymmetric the shock, more the area is efficient.

Treaties of Rome

"Establishment of a common market, a customs union and common policies" common market: free movement of persons, services, goods and capital.

ECB Monetary Policy Strategy

"Price Stability" clarified in May 2003 -> inflation rates below 2%. Based on economic and monetary analysis.

Eurogroup Themes

-budget consolidation & stability programs -quality of public finances - broad guidelines for economic policies (Convergence process across institutions)

EU Council Composition

1 minister from each EU country, 10 configurations (no hierarchy). Double majority voting (majority of countries and EU population)

Budget "Own Resources"

1) Customs duties (+/- 15%) -On imports from outside the EU, member states keep 18%. 2) Own resources based on value added tax (+/- 15%) Uniform 0.3% harmonized VAT base of each member state. 3) Own resources based on GNI (+/- 60%) % of each member states GNI. Designd to cover the balance of the budget but now composes the majority of it. 4) Other sources of revenue. Tax and deductions from EU staff, bank interests, contributions etc...

EU Budget - Governing Principles

1) Unity (all revenue/spending into a single document) 2) Annuity (single year) 3) Equilibrium (balanced budget) 4) Autonomy (entirely "own resources") 5) Solidarity (accounts for contribution ability of member states -> based on % of GDP)

Six Pack - Reducing Macroeconomic imbalances

1) a new surveillance mechanism to correct competitive divergences and imbalances. 2) relies on alert system with indicators from in-depth country studies.

Six Pack - Main elements it relies on

1) early warning system (based on economic reading scoreboard covering major sources of macroeconomic issues). the new procedure allows preventative recommendations at an early stage. 2) A new enforcement regime. (interest deposit imposed after 1 failure, converted to fine after 2 failure to comply).

IMF - low income countries

1) financial support 2) debt relief

Aim of the Stability Growth Pact

1) monitor member states budgetary positions and coordinate economic policies. (Control their own budgets) 2) corrective arm: excessive deficit procedure.

EFC additional tasks

1) prepare the councils reviews and the euro exchange rate. 2) be consulted in the procedure leading to decisions related to ERM 2 (EU member entering the euro zone) 3) provide the framework for communications between the council and the ECB, central banks and the commission.

European Commission Purpose

1) propose new legislation to EP and council 2) manage EU budget and allocating funds 3) enforcing EU legislation 4) represents EU on international stage

EFC Tasks

1) review the economic and financial situation of the member states and community and report regularly to the council and commission. Particularly relations with third countries. 2) contribute to the prep work of the council

ECB Role

1) setting key interest rates for the Eurozone 2) conduct foreign exchange operations 3) manage official foreign reserves of Euro countries 4) promotion of the smooth operation of payment systems (SEPA)

European Monetary Institute (EMI) Tasks [EMU stage 2]

1) strengthen the central banks cooperation and monetary policy coordination 2) prepare the European System of Central Banks (ESCB) for the conduct of a single monetary policy (stage 3).

Six Pack Parts

1) stronger preventative and corrective action 2) national budgetary frameworks 3) reducing macro-economic imbalances and promoting competitiveness.

IMF- Operations

1) surveillance (regular dialogue and advice to members) 2) financial assistance (correct balance of payment problems) 3) technical assistance (help countries design & implement effective policies)

EU internal market facts

17%/28% of world trade in goods/services. created 2.75 million additional jobs. 5.8 million Europeans work in another member state. Cost of phones calls drastically reduced.

Six Pack

6 legislative proposals regarding financial sanctions.

Multi-Annual Financial Framework

A 6 year plan of the broad goals of the EU to be followed within each yearly budget. Composed of 6 components that the EU wants to focus on for the given time period.

Own Resource System Review

A high level group will review the system and see if it should be reformed. Consequences of Brexit on the EU budget??

ECSC treaty

Aim to organize free movement of steel and coal and free access to sources of production. Monitored by high authority.

Single Market

Area without boundaries to allow free movement of people/goods/services/capital.

Euro Area

Areas that have adopted the Euro in accordance with the treaty. Monetary policy conducted under responsibility of governing council of the ECB.

Euro History - Collapse of Bretton Woods

August 1971. EMU temporarily abandoned due to instability.

The single market act 1

Based on Monti Report to boost EU competitiveness and unlock economic growth. 1) improve access to finances for SME's. member states to freely invest in other member states 2) facilitate mobility. recognize professional qualifications in other member states. 3) unitary patent protection 4) alternative dispute resolution 5) free movement of services 6) improving transport and energy infrastructure 7) digital single market 8) social entrepreneurship 9) improving energy taxation by ensuring a consistent tax treatment 10) enhancing social cohesion 11) simplify & harmonize accounting rules 12) public procurement legislation

The ECB

Centre of the European System of Central Banks. Ensures task conferred upon are implemented. Independence from the Maastricht Treaty.

EU Institution Hierarchy

Citizens -> Commission -> Parliament and Council of Ministers -> National or local authorities -> Commission and Court of Justice

EU 2020

Commission proposed strategy for smart, sustainable and inclusive growth. 3 priorities: 1) smart growth (knowledge & innovation based economy) 2) sustainable growth (more resource efficient, greener and competitive economy) 3) inclusive growth (foster high-employment economy)

EU Budget - Procedure

Commission responsible for submitting draft to the council, who then shares it with parliament. Parliament decides whether to adopt or not (in entirety). Subject to "multi-annual inter-institutional agreements to stabilize them -> govern allocation and expenditure to ensure a suitable level.

Introducing the Euro

Countries must participate in ERM 2 for 2 years before adopting Euro. Must fulfill Maastricht convergence criteria. Convergence reports every 2 years minimum.

Euro History - 1970's "snake in the tunnel"

During the 70's all the currency were "put into a basket" to measure them against the fluctuations of the USD. Oil crisis cause some to fluctuate sharply and some left. Countries given different importance based on their importance in Europe (Germany vs. Luxembourg)

European Semester

ECOFIN adopted Sept. 2010. Period every year where member states budgetary and structural policies are reviewed to detect inconsistencies and imbalances while major budget decisions are still in progress. Aim to reinforce coordination. Member states present their medium term budget strategies.

ECB Composition

Executive Board (appointed president, VP and 4 others) Governing Council (supreme decision making body, includes executive board and governors of all euro member state central banks) General Council (a decision making body. Include President, VP and governors of all EU central banks)

White Paper

From the Commission, President Jacques Delors, 279 legislative measures to complete the internal market. Schedule to abolish all physical, technical and tax barriers to free movement.

OECD - Goals

Goal to support sustainable economic growth, boost employment rate, raise living standards, maintain financial stability, assist with other countries economic development, contribute to growth in world trade.

Benefits of a Single Market

Greater mobility, faster+cheaper deliveries across boarders, wider ranges and goods and services, firms gain economies of scale, factors of production more efficiently allocated

Presidency of Council

Held in 6 month rotations for each member state. President organizes and resides over all meetings

The Eurogroup (not = euro system)

Informal structure bringing together ministers of ECOFIN, the commission and the ECB. Composed of 19 member states. Normally meets the day before the ECOFIN meeting.

Monetary Union Objectives

Is first a political decision. - to ease life of companies and citizens; erase exchange rate; stop speculative attacks; erase exchange cost of foreign operations; better price transparency for consumers

Euro adoption [EMU stage 2]

Jan 1, 1999. In May 1998 it was determined that the 11 member states had met the provisions.

EMU - Stage 3

Jan 1, 1999. irrevocable fixing of exchange rates of currencies of 11 member states -> responsibility of ECB. Increased to 12 in 2001 with Greece.

EMU - Stage 2

January 1, 1994. Establishment of the European Monetary Institute/ EMI (no responsibility for the conduct of monetary policy in the EU, or carry out foreign exchange intervention).

EMU -Stage 1

July 1, 1990. All restrictions on movement of capital abolished. Treaty of Rome revisited resulting in Treaty on European Union (Maastricht) for steps 2/3.

Euro History - Delors Report

June 1988. Confirmed the objective of an economic union and mandated a committee to study and propose stages. Resulted in the 3 stage EMU.

Stability and Growth Pact [EMU stage 2]

June 1997. To complete and specify treaty provisions. To ensure members maintain budgetary discipline after adopting the euro. Builds on the convergence criteria.

European Investment Bank (EIB)

est 1958 as the Treaty of Rome. Located in Luxembourg. the EUs bank. Owned by and represents the member states. Provides finance and expertise for projects to further EU policy objectives. Unlock finances for SME's.90% of activity focused in Europe.

Lisbon Strategy

March 2000. Aim to make EU the most competitive economy in the world and have full employment by 2010. 3 pillars: 1) Economic (move to a knowledge based economy, boost R&D) 2) Social (Member states expected to invest in education and training, create active policy for employment) 3) Environmental (decouple economic growth from the use of natural resources) Revised in 2005 midterm review. focus efforts on strong lasting growth and job creation.

Treaty on Stability, Coordination and Governance (TSCG)

March 2012. Signed by 25 European leaders. Aim to strengthen fiscal discipline and introduce stricter surveillance within the euro area. Established "balanced budget rule" @ their MTO and structural deficit within .5% of GDP. If not sanctions (.1% of GDP)

European Financial Stability Facility (EFSF)

May 2010. To safeguard financial stability in Europe by providing financial assistance to euro area states. 1) European Financial Stabilization Mechanism, loan or credit up to 60 billion euro. 2) EFSF, bilateral loans up to 440 billion euros.

ECB Establishment [EMU stage 2]

May 25, 1998. Member states appointed President, VP and executive committee. This was the final task of the EMI -> liquidated.

Revision of the Stability and Growth Pact

Member states must keep public deficits under 3% GDP/deficit ratio, and their debts under a 60% GDP/debt ratio. Other rules got more flexible. (Easier for smaller countries to fix deviations so large countries given longer deadlines)

ECB revelations after crisis

Missing: 1) effective crisis prevention network 2) crisis management and resolution framework 3) an economic and budgetary pillar Sustained divergences in competitiveness and macroeconomic imbalances largely ignored. Conclusion: design of euro area was incomplete.

Eurosystem Objective

Price stability. Objectives of union are a high level of employment and sustainable non-inflationary growth. Price stability = year on year increase in Harmonized Index of Consume Prices for the euro area below 2%.

Secondary Law

Regulations (general applications, binding, directly applicable) Directives (general applications, binding, transposition is necessary) Decisions (binding, individual application) Opinions & Recommendations

Small Business Act

SME's represent 99% of all enterprises. To improve market conditions for them. "Think Small First" is the process/admin reasonable for SME's?

Harmonization of Fiscal Policies

Sensitive issue. Full tax harmonization unrealistic, huge variety of taxation levels across countries. Min degree achieved with VAT rate of 15% on all products (some exceptions).

OECD - composition

est 1961, 34 member countries. Committed to democracy and the mkt economy.

IMF - Distribution of Resources

provided to member states primarily through payment quotas based on countries economic size. Biggest borrowers: Greece, Portugal, Ireland.

ECOFIN

The Economic and Financial Affairs Council. Composed of the commission, the ECB, the economic and finance ministers of each member state and the budget ministers when budgets are being discussed. Meetings held once a month.

Cohesion Policy

To adapt level of support to their rate of development.

Action of the ECB during the crisis

Took exceptional monetary policy measures: 1) standard measures (historically low ECB interest rates) 2) non-standard measures (refinancing, expanding collateral etc..)

The WTO - Agreements

WTO agreements cover trade in goods, services, traded inventions, creations and designs. Agreement negotiated & signed by majority of trading nations and provide legal ground rules for intl commerce. Purpose: to help trade flow freely by removing obstacles (essentially contract-less)

Harmonization - fiscal policy to combat tax competition

We try to avoid competition with taxation. 1) code of conduct for business taxation 2) interest payments rather than taxing savings income 3) eliminate taxes on cross-border interest 4) European directive for admin cooperation in taxation

principle of European harmonization of standards

applied when member states don't have SHEC standards in place, based upon minimal requirements

Single Market Observations

eroding support for EU mkt integration. unequal political attention to development. assumption that integration has been achieved. late & incomplete legislation. admin barriers and lack of enforcement of laws.

Eurosystem

central banking system in the euro area. Included ECB and central banks of each euro member states.

European System of Central Banks

composed of ECB and ALL member state central banks (no just those with Euro).

Competencies of the Council

decides EU laws & annual budget, manages common foreign & defense policies, coordinates broad economic policies

EU Parliament

elected every 5 years, seats in Brussels, Strasbourg and Luxembourg, 751 seats currently

Six Pack - Voting

enforcement strengthen by increased "reverse qualified majority" voting. Proposal adopted unless a qualified majority vote against. -> more competence to the commission

World Bank

est. 1944, 188 member countries 4 institutions: 1) International Bank for Reconstruction and Development (loans and development assistance to middle income countries. $ from selling bonds on intl capital markets) 2) International Development Association (reducing poverty in poorest countries, interest free loans and grants. $ from wealthier member countries) 3) International Finance Cooperation (finances private sector investments and technical support to govts and businesses. $ from private investors) 4) Multilateral Investment Guarantee Agency (guarantees to foreign investors against los caused by non-commercial risks)

The WTO

est. 1995 with 157 states. (predecessor: General Agreement on Tariffs and Trade, 1948). Create during last GATT round.

Euro History - European Coal and Steel Community

est. April 1951

Euro History- European Monetary Agreement (EMA)

est. Dec 1958. Designed to foster general convertibility of European currencies. Ended in 1972.

Euro History - The Hague Summit

est. Dec 1969. Decision to make an Economic and Monetary Union (EMU).

Euro History - European Monetary System

est. Dec 1978. Aim to stabilize exchange rates, reducing inflation, and preparing for monetary integration.

Euro History - Treaty of Rome

est. March 1957. Only minor provisions for the 6 original member states, because they were all part of Bretton woods (very similar)

Euro History - The Werner Report

est. Oct 1970. Proposed a 3 stage plan to create an EMU within a decade.

Euro History - European Payments Union

est. Sept 1950. Provided a basis for currency convertibility in Europe.

IMF - Composition

est. in 1944. 188 member countries. day-to-day work overseen by 24 member executive board.

Exchange Rate Mechanism (ERM)

gave currencies a central exchange rate against the ECU, also central cross rates. Participants required to maintain their exchange rates within 2.25% fluctuation band of the central rate. Some exceptions (Italy, UK)

International role of the Euro

international reserves of the euro have steadily increased. second most traded currency in foreign exchange markets. Still weak compared to the US (similar economy size). + strong resilience - political will of the US - no Wall street equivalent for the Euro

OECD - functions

large reliable source of stats and economic& social data. Setting for govts to compare policy experiences, seek answers to common issues and coordinate domestic & intl policies.

Exchange Rate Policy downsides

loss of the monetary toll at the national level. (not possible to devalue currency if needed)

G7/G8/G20

meetings of the world largest developed countries (G7/G8). G20- finance ministers and central bank governors to meet on a regular basis to discuss key issues.

Cassis de Dijon case law exception

member states maintain prerogative on SHEC matters (safety, health, environment and consumer protection)

Six Pack - National Budgetary Framework

min requirements: 1) member states should ensure their frameworks are inline with quality standards and cover all admin levels. 2) national fiscal planning should adopt a multi-annual perspective, to attain med-term-objectives 3) numerical fiscal rules should promote compliance with the treaty values.

OECD - Membership

not automatic. Cpouncil decides weather a country should be invited and on which conditions. EU has always work to have all member states (including new ones) become a member of the OECD.

EU Budget - Facts

policy limited. around 145 billion euros in 2015 (smaller than that of a medium sized member state). Represents 1% of EU-27 GDP. Subject to max. of 1.24% of total gross national income of the member states.

IMF - Objectives

promote international monetary cooperation, facilitate expansion and growth of international trade, est. multilateral system of payments

The single market act II

proposed in Oct 2012 to further develop the single mkt. 1) Developing fully integrated transportation networks in the single market 2) Fostering mobility of citizens and businesses across borders 3) Supporting the digital economy across Europe (communication, online services, paperless admin) 4) Strengthening social entrepreneurship cohesions and consumer confidence. (product safety & enforcement)

European Commission Presidency

proposed/appointed by council, commissioner nominated by member states. Presidents team of VP's questioned & voted on by EU Parliament for suitability