Dr. Wendy Jeffus

Harvard Extension School

European Union

After WWII… (~1945) There was one thing most of the world leaders

agreed upon… They did not want another World War.

Photo: Wikipedia.org "Fat Man" is the codename, allegedly named after Winston Churchill, of the atomic bomb that was detonated over Nagasaki, Japan.

List of all Allied powers Main Allied Powers:

* China* France* Great Britain* Soviet Union* United States

List of all Axis PowersMain Axis Powers:

* Japan* Germany* Italy

Casualties

Military dead:Over 14,000,000Civilian dead:Over 36,000,000Total dead:Over 50,000,000

Military dead:Over 8,000,000Civilian dead:Over 4,000,000Total deadOver 12,000,000

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

Source: cartoonstock.com

Three Pillars…First pillar   Second pillar   Third pillar  

European Communities (EC) Common Foreign and Security Policy

(CFSP)

Police and Judicial Co-operation in Criminal Matters

(PJCC)

•Customs Union & Single market •Common Agricultural Policy •Common Fisheries Policy •EU competition law •Economic and monetary union •EU-Citizenship •Education & Culture •Trans-European Networks •Consumer protection •Healthcare •Research •Environmental law •Social policy •Asylum policy •Immigration policy

Foreign policy:•Human rights •Democracy •Foreign aid Security policy:•European Security & Defense Policy •EU battle groups •Peacekeeping

•Drug trafficking & weapons smuggling •Terrorism •Trafficking in human beings •Organized crime •Bribery & fraud

Euro 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.http://ec.europa.eu/euro/entry.html

Council Decision on the adoption of the euro

Dual circulation period ends 28 February 2002

1 January 1999 Adoption of the euro

1 January 2002 introduction of euro cash

Transition period

The EuroCurrency Abbr. Rate

   Austrian schillings (ATS) 13.760300

   Belgian francs (BEF) 40.339900

   Dutch gulden (NLG) 2.203710

   Finnish markka (FIM) 5.945730

   French francs (FRF) 6.559570

   German mark (DEM) 1.955830

   Irish pounds (IEP) 0.787564

   Italian lire (ITL) 1936.270000

   Luxembourg francs (LUF) 40.339900

   Portuguese escudos (PTE) 200.482000

   Spanish pesetas (ESP) 166.386000

  Greek drachma (GRD) 340.750

Slovenian tolars (SIT) 239.640

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? 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 ~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

Challenges 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: Automobiles

– The most expensive: Germany and Austria – The cheapest: Spain, Greece, Finland and Denmark

http://europa.eu/rapid/pressReleasesAction.do?reference=IP/02/1109&format=HTML&aged=0&language=EN&guiLanguage=en

Question Should the European Commission publish this

information? http://ec.europa.eu/comm/competition/sectors/

motor_vehicles/overview_en.html

What are the benefits and costs?

Regulations Some members of the media seem to think the

regulations have gone overboard…

Source: Cartoonstock.com

Regional Development What is the EU doing to support regional

development? What have been the pros and cons to these

actions?

Other Issues

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 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 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? Costs:

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

Benefits:– Lower interest rate differentials– Larger market

Have/Will the benefits outweigh the costs?

Going Forward… Agricultural Reforms

– Cereal price guarantees– Beef guarantees

Cronyism and Corruption– http://query.nytimes.com/gst/fullpage.html?

res=9E03EED6113EF935A25750C0A96F958260&n=Top/Reference/Times%20Topics/Organizations/E/European%20Commission