EMU and the euro . . . (for dummies?). Presentation by Nigel Nagarajan Student Orientation – 2009 Euro Challenge Miami-Florida European Union Center of Excellence January 22nd, 2009. What are we going to cover today?. What is EMU ?
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EMU and the euro . . . (for dummies?)
Presentation by Nigel Nagarajan
Student Orientation – 2009 Euro Challenge
Miami-Florida European Union Center of Excellence
January 22nd, 2009
HELLO, MY NAME IS
. . . EMU is not a bird!
1) The euro – countries give up their own currency when they join the euro area. The ECB sets interest rates for the euro area (16)
2) The single market – all countries participate in the single market, with free movement of goods, services, capital and people (27)
3) Enhanced policy coordination – countries retain sovereignty over other economic policies but commit to coordinate more closely at the European level (27/16)
Countries that adopt the euro can no longer change their INTEREST RATE or their EXCHANGE RATE. In a monetary union, you cannot have an INDEPENDENT MONETARY POLICY.
The challenge of asymmetric shocks
(1) Federal fiscal system
(2) High labour mobility
Real world example of a single currency area
Euro area less good at coping with shocks?
Asymmetric shock: oil prices . Affects Texas and Massachusetts differently.
The benefits of EU membership – the single market
The single market – economies of scale
The euro and the single market
“One market, one money”
Single monetary policy
set by the ECB
Fiscal and other policies
set by Member States
(but subject to common rules)
Eurogroup Finance Ministers
Federal Reserve Chairman
Ben S. Bernanke
Henry M. Paulson
Economic policy co-ordination more difficult?
“this is an equal-opportunities economic crisis, and the euro area is in it just as deep as America, Britain and the rest.” – The Economist, January 15th, 2009
ECB cuts interest rates to 2%
European Economic Recovery Plan – governments enact fiscal stimulus packages
Speed up economic reforms (Lisbon Strategy) http://ec.europa.eu/growthandjobs/index_en.htm
Make the single market work better (especially for Services)