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History of European integration

History of European integration. 1950 - European Payments Union 1951 - European Coal and Steel Community 1957 - Treaty of Rome 1970s & 1980s - Expansion of EU 1986 - Single European Act 1992 - Maastricht Treaty 1999 - EMU. Political -Council of Ministers as decision making body

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History of European integration

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  1. History of European integration • 1950 - European Payments Union • 1951 - European Coal and Steel Community • 1957 - Treaty of Rome • 1970s & 1980s - Expansion of EU • 1986 - Single European Act • 1992 - Maastricht Treaty • 1999 - EMU

  2. Political -Council of Ministers as decision making body -European law -European Parliament (directly elected since 1979) Economic -Eliminate internal customs duties and quotas -Common external trade policy -Creation of single market Two dimensions

  3. GDP growth 1990-2000

  4. Unemployment 1990-2000

  5. No New Economy in EuropeProductivity growth 1990-2000

  6. EMU: What happened? • January 1, 1999 (Stage IIIA) • Formal launch of euro • ECB takes over monetary policy • January 1, 2002 (Stage IIIB) • Introduction of euro notes & coins

  7. EMU • Profound change in international monetary relations • Between the countries of Europe • Between Europe and the rest of the world • Model for what we will see in the 21st century?

  8. Why does it matter for Europe? • Fundamental change in monetary policy • ECB independent • Mandate for price stability • Significance of currency as symbol of sovereignty • Move towards “super state”

  9. The euro

  10. The €1 coin

  11. The €5 note (front)

  12. The €5 note (rear)

  13. The €10 note (front)

  14. The €10 note (rear)

  15. The €50 note (front)

  16. The €50 note (rear)

  17. The €100 note (front)

  18. The €100 note (rear)

  19. The €200 note (front)

  20. The €200 note (rear)

  21. The €500 note (front)

  22. Institutions Council of Ministers European Commission European Parliament European Central Bank

  23. Policy making institutions 6 Executive Board Members of the ECB Governing Council of the ECB 12 National Central Bank Governors Monetary policy for euro area

  24. Strategy & accountability • Twin pillars of ECB monetary policy strategy • Broad based assessment of outlook for price stability • Reference value for money growth • Quantitative definition of price stability • 2% inflation or less

  25. Three facets of EMU • Creation of European “super state” • Deepening and strengthening the single market • Monetary stability through new institutions

  26. Why does it matter for the US? • Europe is our most important trading partner • Europe is the most important source of investment in the US • The euro as a competitor with the dollar

  27. Destination of US exports

  28. Source of US imports

  29. Source of US FDI

  30. Destination of US FDI

  31. The euro as a competitor with the dollar • US dollar dominant in international transactions • size and global reach of US • stability of purchasing power • Benefit to US: seigniorage revenue • Challenge from high-denomination euro notes?

  32. A model for the future? • National central banks an expensive luxury? • The debate over dollarization • Monetary union as an alternative?

  33. Dollar-euro exchange rate $ per € Launch of EMU $ per ECU prior to 1999

  34. EU expansion Other EU Candidate countries Euro area Candidate countries not shown: Malta and Cyprus

  35. The demographic timebomb

  36. Will the euro displace the dollar? • Dollar currently the primary international currency • Euro has potential to match and even displace the dollar • But...

  37. Will the euro displace the dollar? • Difficult to dislodge established currency • Thirty years for dollar to displace sterling • Would it matter?

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