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European Union. Dr. Wendy Jeffus Harvard Extension School. After WWII… (~1945). There was one thing most of the world leaders agreed upon… They did not want another World War. Photo: "Fat Man" is the codename, allegedly named after

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European union

European Union

Dr. Wendy Jeffus

Harvard Extension School

After wwii 1945
After WWII… (~1945)

  • There was one thing most of the world leaders agreed upon…

  • They did not want another World War.

Photo: "Fat Man" is the codename, allegedly named after

Winston Churchill, of the atomic bomb that was detonated over Nagasaki, Japan.

Integration poverty reduction
Integration & Poverty Reduction

  • The 44 Allied Powers met in Bretton Woods in 1944.

  • The World Bank

    • Created to rebuild the destroyed Europe after World War II

  • The International Monetary Fund (IMF)

    • Main goals: Stabilize exchange rates and supervise the reconstruction of the world's international payment system.

  • In 1946, Winston Churchill called for a “United States of Europe” but efforts failed.

Unstoppable storm
Unstoppable Storm



  • The euro is the currency of 13 European Union countries: Belgium, Germany, Greece, Spain, France, Ireland, Italy, Luxembourg, the Netherlands, Austria, Portugal, Slovenia and Finland.

  • Cyprus and Malta will adopt the euro on 1 January 2008.

1 January 1999 Adoption of the euro

1 January 2002 introduction of euro cash

Transition period

Council Decision on the adoption of the euro

Dual circulation period ends 28 February 2002

Convergence criteria
Convergence criteria

  • Price stability:

    • inflation rate not exceeding by more than 1.5 percentage points that of three best performing countries;

  • Public finances:

    • absence of an excessive government deficit, which is defined in terms of the government deficit having to be below the reference value of 3% of GDP and the level and evolution of the government debt compared to the reference value of 60% of GDP;

  • Exchange rate stability:

    • observance of the normal margins of the exchange rate mechanism of the EMS without severe tensions or devaluation for 2 years;

  • Long term interest rates:

    • not exceeding by more than 2 percentage points that of the three best performing countries in terms of price stability.

What did convergence mean
What did “convergence” mean?

  • Yes a Common Currency… but also…

  • Tax Systems

  • Pensions

  • Health Care

  • Work Rules

  • Agriculture Subsidies

  • Fiscal Budgets

  • Single European Act: Free Movement of People, Goods, and Services…

Single european act
Single European Act

  • ~1987 The Single European Act (SEA) revised the Treaties of Rome.

    • To add new momentum to European integration and to complete the internal market.

    • Physical Barriers

      • Customs controls & Red tape

    • Technical Barriers

      • National product standards & Conflicting business laws

    • Fiscal Barriers

      • Value-added Taxes


  • Price differentials

    • Pharmaceuticals, Electronics, etc.

  • Diverse Regulations

    • Environment, Health, Standards

  • Employment Crisis

    • High min wage, payroll taxes, & unemployment benefits.

  • Culture

    • Is it true that the Netherlands is closer to the US, than to France?

  • Recession in Europe

Price convergence
Price Convergence:

  • Automobiles

    • The most expensive: Germany and Austria

    • The cheapest: Spain, Greece, Finland and Denmark



  • Should the European Commission publish this information?


  • What are the benefits and costs?


  • Some members of the media seem to think the regulations have gone overboard…


Regional development
Regional Development

  • What is the EU doing to support regional development?

  • What have been the pros and cons to these actions?

Other issues labor market
Other Issues: Labor Market

  • Migration of works was not as high as originally expected.

    • What was the impact of migration? What are the pros and cons?

  • Reduced unemployment benefits

  • Part-time employment increased

  • Reduction in the work week.

    • What is the impact of a reduced work week? What are the pros and cons?

Other issues capital markets
Other Issues: Capital Markets

  • According to your case, the Single European Act clearly viewed capital markets as a “barrier to integration.”

  • Capital Markets in Europe were:

    • Regulated differently

    • Fragmented

      • Few cross-border sales of life insurance

      • Price of credit cards varied widely

      • Wide range of mortgage costs

  • Goals for the banking industry included:

    • Lower regulatory barriers

    • Modern capital markets

European system of central banks
European System of Central Banks

  • One goal: Price Stability

  • Free from political pressure.

  • Four Key Tasks:

    • Define Monetary Policy

    • Foreign Exchange

    • Hold/Manage Member State’s Official Reserves

    • Ensure Smooth Payment System

  • Challenge: Interest Rates

    • Germany had slow growth (needed a low rate)

    • Ireland and Spain had fast growth

What were the costs and benefits
What were the costs and benefits?

  • Costs:

    • $30M for firms with 5,000 employees.

  • Benefits:

    • Lower interest rate differentials

    • Larger market

  • Have/Will the benefits outweigh the costs?

Going forward
Going Forward…

  • Agricultural Reforms

    • Cereal price guarantees

    • Beef guarantees

  • Cronyism and Corruption