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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