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EU economic issues

A presentation for Neeley School of Business
by

Cody Bailey

on 20 July 2011

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Transcript of EU economic issues

EU
Brief history
Treaty of Brussels
Forms the Western European Union
Common defense against the Soviet Union
Goals were to provide for a safer, war-free Europe
Who is a member?
What is the EU?
Belgium
France
Germany
Treaty of Paris
Establishes European Coal and Steel Community (ECSC)
Treaty of Rome
Treaty of Brussels
A unique economic and politcal partnership between 27 democratic European countries
Create economic scale and efficiencies to be more competitive with the the likes of the U.S., China, India
Founders
Italy
Luxembourg
Netherlands
Greece
Portugal
Spain
1980s
Denmark
Ireland
United Kingdom
1970s
Austria
Finland
Sweden
1990s
Cypress
Czech Republic
Estonia
Hungary
2004
Latvia
Lithuania
Malta
Polanda
Bulgaria
Romania
2007
European Economic Community (EEC)
"common market"
Consolidated each treaty into a single structure
Berlin Wall falls
Germany is reunified
Former Eastern Germany joins the EU a year later
Single European Act
Common market wasn't working
Created free movement of goods, services, people, and money
The European Union
Formation of the three pillars:
Economic, Justice, and Security
Treaty of Maasricht
Economic union
Free movement of goods and services
Mobility of capitol and labor
EU-wide competition poilcy
Monetary union
Irrevocably fixed exchange rates
Replace national currencies with the euro
Single monetary policy managed by European Central Bank
Implications
Single interest rate
Monetary policy can't respond to country specific needs/shocks
This will become a major problem
ECB introduces the Euro
Used for non-cash transactions
2002: Euro notes and coins go into circulation
The Euro
Fiscal discipline
required for entry
Copenhagen criteria
Benefits
Costs
Inflation no more than 1.5% higher than three best performing members
Deficit ratio to GDP must ot exceed 3%
Debt ratio to GDP must not exceed 60%
Lower transcation costs
Elimination of exchange rate risk
Greater competition and efficiency
Greater integration of markets
Inflation discipline by ECB
Fiscal discipline a requirement
Fixed XR eliminate using XR as policy tool
Monetary tools can't help with shocks
Limited ability to use fiscal policy as stabilization tool
The Eurozone
Currently
17 states
Effects
Trade is up
Investment up
Interests rates down
Tourism up
Inflation held in check
Sub-prime mortages
Bear Stearns
AIG
Panic
The end of days
EU not immune
The sub-prime
mortgage crisis
It wasn't
When EMU first came together all the member countries were treated basically the same by investors
Greece, Spain, Italy, and Ireland paid about the same for euro borrowing as Germany
Expectation was that Maastricht treaty criteria would be followed
What happened?
Remember the 3%, 60% resrictions?
Greece, Portugal, Ireland didn't
Rising debt
Current conditions
E 110 million loan to Greece
E 1 trillion to form European Economic Stability Facility
Crisis management
With help from the IMF and World Bank provides support for struggling EU nations
Capitalize banks or buy sovereign debt
E 75 billion to Ireland
Portugal has requested funds as well
Free riders
What's the problem?
A country with its own currency is deterred from taking on too much debt because of the threat to confidence and convertibility of it currency. But ...
When a nation doesn't have its own, it can risk larger deficits because the risk of exchange stability is removed.
It takes a free ride, devaluing the currency for everyone.
Is it working?
Too soon to tell
Traditional policy measures aren't applicable
Competion problems - Euro strong
Labor isn't mobile enough
Economic issues for the Euro and Italy
Italian Republic
Italian unification
Fascist Italy
Economic history
Current Conditions
Ranked #7 in GDP
Member of G8
Member of EU, Eurozone
Italian Economic Miracle (40’s – 60’s)
The “Second Republic”
Member of the WTO
Member of OECD
Unemployment avg 9% (8.6% Jan 2011)
Not as affected by the 2000s recessions
Slight decrease in economic growth (-1% to -5%)
High freedom of investment, business, trade
8th highest quality of life
High standard of living
8th largest exporter
Natural resources
Large amount of unsuitable land for farming
Little iron, coal, or oil
Natural gas
80%+ of energy is imported
Imports the most electricity in the world
7th highest producer of wind power
Corn, rice, beets, soybeans, meat, fruits, dairy predominantly in the North
Corn v. Grapes
Wheat and Citrus in the South
1st or 2nd largest producer of wine
Agriculture
Labor
Biagi Law
Underground Economy (Mafia)
Drugs, trash smuggling, counterfeit goods, arms trafficking
40% unions
Tourism
Low property rights protection
Corruption
Heavy taxation
Small to medium sized ventures
Misc.
Full transcript