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ECONOMIC AND MONETARY UNION - Coggle Diagram
ECONOMIC AND MONETARY UNION
Members to the EMU means
A common currency
Free capital movements
A common monetary policy
Co-ordinating fiscal and economic policies
Convergence criteria
Inflation rate of 2%
Annual state budget with a maximum 3% deficit
A national debt of no more than 60% of GDP
Responsibilities of the European Central Bank
Distributing notes and coins throughout the eurozone
Sets interest rates for the eurozone countries
Maintaining a stable financial system
Manage the foreign currency reserves for the EMU
Benefits
Reduced exchange rate costs and risk of currency changes due to the use of a single currency
Greater price transparency
More trade and economies of scale due to reduced exchange rate costs and better price transparency
Foreign Direct Investment from overseas companies
Common monetary policies (convergence criteria)
Drawbacks
High transition costs
Loss of policy independence
Structural problems (one-size fits all monetary view)
Loss of political sovereignty (single currency)
Break-up of eurozone