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The Economic and Monetary Union The Basis of European Economic…
The Economic and Monetary Union
The Basis of European Economic Integration
THE EURO AREA
On 1 January 1999,
euro was introduced
principal benefits
lower currency risk
elimination of the costs of currency exchange
lower interest rates,
lowering unit labour costs
increasing labour productivity
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emergence of external stimuli
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comparability of prices and services.
lower political risk for foreign investors
non-cash transactions
1 January 2002
cash form
TREATY OF MAASTRICHT
Fiscal criteria
admissible debt was 60 per cent GDP
ratio of government deficit to GDP not exceed 3%
Stages:
Evaluation of members
establishment of European Monetary Institute
establishing new common currency
implementation of an exchange rate mechanism
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Monetary criteria
price stability
interest rate
exchange rate
STAGE FOR MONETARY UNION
European Monetary System
answer to the growing fluctuations
in exchange rates
principle:
area of stable currencies in the EEC.
created:
1. Exchange-Rate Mechanism (ERM)
for members
currency exchange rates were set
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CURRENCY AREA
Optimum currency area theory
1961
due to consequences
of currency exchange
by Robert Mundell
defined as:
region with one or more currencies
with exchange rates fixed
to better meet the needs
increases prosperity
loss of control over the monetary policy
absorbing external shocks
when:
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susceptible to shocks
when:
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BEGINNINGS
1. The Treaty of Rome
monetary cooperation
not the key element
created
monetary policy
by the Monetary Committee
2. Bretton Woods system
guarantee stability of currencies
collapsed on 1971
ending the exchangeability of the dollar for gold
3. Common Market
goals
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established with:
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economic area
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obligation
monetary policy
to mantain:
exchange rates at 1%
created
institutions
International Bank for
Reconstruction and Development (IBRD)
International Monetary Fund (IMF)