Mr. Massimo M Beber Senior Tutor College Lecturer in Economics. Sidney Sussex College Cambridge CB2 3HU [email protected] http://people.ds.cam.ac.uk/mb65/. Arts, Humanities and Social Sciences Summer School 2013 One Market, One Money? The Economics and Politics of European Monetary Union
Mr. Massimo M Beber
College Lecturer in Economics
Sidney Sussex College
Cambridge CB2 3HU
Arts, Humanities and Social Sciences Summer School 2013
One Market, One Money?
The Economics and Politics of European Monetary Union
PRODUCTIVITY SLOWDOWN AND RECOVERY
Source: The Kok Report (2004)
AVERAGE EU INCOME PER PERSON AS % OF THAT OF USA
Source: High Level Group (2004): Figure 1
The real exchange rate compares our prices with prices abroad: “purchasing power parity” favours equilibrium in our foreign trade
If world prices are stable
But the home economy experiences inflation
A fall in the exchange rate can act as a safety valve or “parachute” by restoring the price competitiveness of our goods
Exchange Rate, Relative Returns, and Volatility
If total expected returns are quickly equalised by arbitrage...
…expected depreciation will generate an immediate change in today’s interest rate and/or exchange rate: expected depreciation causes either an immediate monetary contraction or immediate depreciation
TRADE-OFFS IN THE INTERNATIONAL FINANCIAL ARCHITECTURE
Monetary and Macroeconomic Sovereignty
Stable Real Exchange Rate
Free Mobility of Capital
A:the Gold Standard as an “anchor” to the price level
B: the Bretton Woods compromise
C: the German model, Mrs Thatcher’s monetarist experiment
C’, C’’: the Keynesians’ Last Hurrah between autarchy and stagflation
D:back to the anchor: EMU, currency boards, dollarisation...
Costs and Benefits of monetary union
Source: Commission of the European Union (2003) Second Progress Report on Economic and Social Cohesion. Communication from the Commission, Brussels, Commission of the European Union: COMM (2003) 34 Final): Maps
Source: Lane (2012) “The European Sovereign Debt Crisis”, p. 52.
Source: Lane (2012) “The European Sovereign Debt Crisis”, p. 53.
while Germany is running a big trade surplus with the rest of the eurozone which Germany's private sector is no longer willing to finance, transfers of one sort or another are inevitable. But no-one should be under any illusions about how difficult this is for politicians to explain to their electorates, even if they understand themselves. In the public's eyes and in the minds of many politicians, a trade surplus just shows that their country is more competitive. What could be wrong with that?
Simon Tilford, July 2012
“either poor countries will become richer, or poor people will move to rich countries. Actually, these two developments can be seen equivalent. Development is about people: either poor people have ways to become richer where they are now, or they can become rich by moving somewhere else. “ (Milanovic 2012)
we frown upon the transmission of family-acquired wealth to offsprings if two different individuals belong to the same nation [but] we take it as normal that there is a transmission of collectively acquired wealth over generations within the same nation, and if two individuals belong to two different nations, we do not even think, much less question, such acquired differences in wealth, income and global social position. (Milanovic 2012)
European policy-makers have been reluctant to accept that the eurozone's decentralised nature makes it an inherently unstable currency union that forces its constituent states and 'their' banks into a pernicious and deadly embrace.
On the face of it, all that changed at the June 29 summit, when member-states agreed to consider establishing a banking union. Among the features of such a union would be: a shared supervisory authority; a collective deposit protection scheme for the currency union; and a common resolution framework for dealing with weak banks.
... The idea of a banking union is sometimes spoken of as an easier route to 'mutualisation' (or federalisation) than issuing common debt – partly, the reasoning goes, because citizens do not understand what a banking union entails.
Philip Whyte, July 2012