...Membership of the EMU 5 2.1 Benefits of EMU Membership & Mechanisms 5 2.2 Costs of EMU Membership 7 3.0 Contextual Factors: The Profusion of Dept 10 3.1 The Eurozone Crisis 10 3.3 Greece- The Forefront of the Euro Area Crisis 13 4.0 Alternate Policies and the Effective Consequences 15 4.1 Predicament 15 4.2 Abetting Dependent on Austerity 16 4.3 Creditor-Led Default 17 4.4 Debtor-led Default and Greek Haircuts 19 4.5 Greek Exit 20 5.0 Recommendation 21 Appendices: Appendix 1: Preferential liberalization References List of Illustrations Pg. Illustration 1: The cost of EMU- Diminishing Domestic Flexibility to Asymmetric Macro Shocks 7 Illustration 2: Cost and benefit of Monetary Unions 9 Illustration 3: Evolution of Nominal Unit Labor Costs in the Eurozone Pre to the US Credit Crunch 9 Illustration 4: Current Account Balances in Percentage GDP 10 Illustration 5: Core Bank Exposure to the Weaker Eurozone Member States 12 Illustration 5: Holders of Greek Government Bonds and Dept (in billion Euro) 16 Executive Summary The standing Economic and Finance minister of Germany has commissioned the policy paper for the forthcoming Council of Economic and Finance ministers meeting. The policy undertakes a consideration of whether Greece should exit the European Union on economic grounds. Currently, the Greek dept crisis is infecting the...
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...euro-zone crisis – causes, the crisis and reformation policies (with special reference to greece) the euro-zone ‘The Eurozone’ is the nickname commonly used to describe the member states that use the EU’s single currency, the Euro. The idea of creating a single currency for the European Community was first mentioned in the 1970 Werner report, which led to the establishing of the European Monetary System (EMS), the forerunner of the Economic and Monetary Union (EMU). The Maastricht Treaty (1992) made EMU a part of EU law and set out a plan to introduce the single currency (the Euro) by 1999. The Maastricht Treaty also established certain budgetary and monetary rules for countries wishing to join the EMU (known as the convergence criteria). In 1998, 11 member states (Germany, France, Italy, Belgium, Luxembourg, the Netherlands, Spain, Portugal, Ireland, Austria and Finland) undertook the final stage of EMU when they adopted a single exchange rate, which was set by the European Central Bank (Britain, Sweden and Denmark negotiated an opt-out from this final states of EMU). The new Euro notes and coins were launched on 1 January 2002. There are currently 16 EU states in the Eurozone. Greece joined the initial 11 members in 2001, Slovenia joined in 2007, Cyprus and Malta in 2008, and Slovakia joined in 2009. Estonia is due to join the Eurozone in 2011. All future members of the EU must adopt the Euro when they fulfil the convergence criteria. Economic and Monetary Union (EMU) Step...
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...The root-causes of the Greek sovereign debt crisis Basil Manessiotis paper presented at the 2nd Bank of Greece workshop on the economies of Eastern European and Mediterranean countries Athens, 6 May 2011 1 Introduction To better understand the current sovereign debt crisis in Greece, a longer view is warranted The 20 year period 1989-2009 is bounded by two major fiscal crises in Greece: the 1989-1993 crisis, and the ongoing crisis. In both crises deficits exceeded 15,0% of GDP. In between, Greece entered the Economic and Monetary Union and adopted the Euro To facilitate discussion the 20 year period will be divided into two parts: the 1989-1999 period, and the 2000-2009 period. 2 1989-1999: securing EMU membership The 1989-1993 sub-period: Macroeconomic developments Weak economic activity (1.2% average growth) Very high inflation (16.8% annual average) Very high real and nominal interest rates Low fixed investment (1.5% annual average) Fiscal developments Very high general government deficits (13.6% of GDP average) The 1990 deficit reached 15.9% of GDP Primary deficit averaged 4.3% of GDP Fast accumulation of debt Debt ratio increased from 69.0% of GDP in 1989 to 110.1% of GDP in 1993 Other reasons for debt accumulation Very high interest payments From 6.8% of GDP in 1989 to 11.4% of GDP in 1993 3 TABLE 1 Selected Macroeconomic Indicators (annual average rate) 1989-1993 Real GDP growth Fixed investment growth Inflation (CPI) General Government...
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...The European Monetary Union (EMU) was established as a formal objective in 1992 from the Treaty of Maastricht. In 1995 initial details of a union currency “the Euro” was announced and in 1998 the European Central Bank (ECB) was created and in 1999 the Euro underwent a 3 year transition introducing the Euro notes and coins. The purpose of this text is to analyse in detail EMU’s macroeconomic framework and performance and how this has evolved in the past 10 years. Firstly, I will look into the fiscal policy set out by the EMU however the bulk of the text will look into the monetary policy framework. Finally I will conclude by briefly trying to pin point the links between the macroeconomic framework to the current Eurozone crisis. In general on average the Eurozone’s first decade is viewed as a success and the ECB met its targets by delivering low and stable inflation with an output gap consistently close to 0. However, if we inspect country by country, we witness a large variation. The macroeconomic framework of the EMU, takes 2 main forms Fiscal policy and Monetary Policy. National governments are responsible for their individual fiscal policy while the ECB undertook the responsibility of Monetary Policy. Under the umbrella of Fiscal policy, the Stability and Growth pact provides a clear economic boundary to all Eurozone members. The Stability and Growth Pact specifies 2 boundaries. Firstly, national budget deficits must be kept below 3% and secondly the ratio of the government...
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...This essay will talk about what is currently going in Europe with the Eurozone sovereign debt crisis and the fiscal state the European Union is in, it is important and interesting because it is still current affairs and there are various factors and decisions that have helped the path that the crisis is going in, this essay will look at the crisis but on the implications and problems that European union face as well as what they have faced already and whether the European Central Bank are doing enough to improve the situation and what their plans are for the future. A sovereign bond serves as a floor for interest rates banks charged for loans and for the pricing of other financial contracts and securities. The global financial crisis led to the deterioration of government budgets and finances as nations utilized public expenditures to provide stability and stimulus. The Eurozone suffered because of heavy borrowing practices, property pebbles and living above their means. The Eurozone debt crisis started because Greece who had borrowed heavily in international capital markets over the past decade were turned against by investors this is because Greece in 2009 admitted that they had double the amount of debt that was allowed in the Eurozone limit. Ratings agencies started to downgrade Greek bank and government debt, and there was fear of Greece defaulting and not being able to pay back its debts but the Greek Prime Minister George Papandreou insisted otherwise however this was...
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...The Euro Debt Crisis: Greece’s and its Next Move Matthew Schrock Financial Markets & Institutions Dr. Victoria Geyfman December 6, 2012 “The Euro Crisis and Greece’s Next Move” The Euro currency, during its original preparation and issuance, had been seen with optimism. It was presumed that the new union of European markets would create a new economic power within Europe, matching it with other economic leaders such as the U.S. and other powers. At this point in history, the Euro seems to be on the brink of despair. The European Monetary Union had determined and established the prerequisite diplomacy and policy making to assure a newly created stable and integrated economy of Europe. The reality of this new currency and monetary union is far from the original optimistic outlook. Policy set forth in the original agreements and conditions of the European Monetary Union that had been established before its adoption had been treated without regard by countries. This disregard started with deceit from Greece but quickly became almost the status quo. Greece is known as the catalyst and a scapegoat within the views of the Euro debt crisis. Greece is on the brink of insolvency and others are following. Options are available in this time of uncertainty, whether they are conventional or not, that could result in Greece remaining within the Euro and accepting austerity or altering their status and participation within the monetary union. The decision that will be...
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...In the immediate aftermath of the financial meltdown in 2008, the global crisis has made an important shift. By then not the private banking sector, from where the financial crisis originally emerged from, but sovereign states face the risk of default. In order to analyse the multifaceted character of the European sovereign debt crisis, this essay focuses on its systemic causes. Contrary to the argument of popular Northern European politicians and journalists that blame the inability of Southern European states to manage deficit spending, the Eurozone crisis is firstly determined by imbalances in the European Monetary Union, and secondly by imbalances in the global political economy. This paper argues that the vast amount of sovereign debt is therefore not the result of weak Southern European nations, but of inherent structural illnesses that ultimately led to the current crisis. This essay is divided into two sections. The first section examines the problems of the design of the European Monetary Union. In regard to the theory of an ‘Optimum Currency Area’ by Robert Mundell, it analyses the extent to which the EMU has failed to meet the criteria of optimised efficiency. In the absence of an adjustment mechanism for unequal development in Euro member states, the dominance of Germany as leading export nation created severe inequalities. The second section then focuses on the role of the global political economy and imbalances that were created in the ‘era of financialisation’ following...
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...Critically analyse the current state of the European Monetary Union. The European Monetary Union or the European Economic and Monetary Union (EMU) is the successor to its predecessor: The European Monetary System, and attempts to deliver an economic system which is unified and cohesive for all the members of the European Union. Perhaps the most notable and drastic change implemented under this systematic collection of policies is the adoption of the Euro currency over the national currencies of the member states out of which only the United Kingdom and Denmark have chosen to not follow in the footsteps of their fellow member countries. The European Monetary Union is essentially a complex but involved coordination of a common monetary policy amongst all members of the European union, accommodating fiscal and economic policies and most notably the currency common to all members, the Euro. This decision to form an exclusive and unified front was undertaken in December, of 1991, in the city of Maastricht in Netherlands and was later more firmly integrated in the Maastricht Treaty on the European Union. It has been designed as a tool to implement the full economic integration of the European Union and to complete the integration as one system, which started in 1957. Through this integration, the European Union hopes to gain the benefits of having a larger sized failsafe net, internal and cohesive efficiency combined together with the European Monetary Union, it would provide...
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...1.The begin of EMU, EMU convergence criteria. Purpose: The main purpose of European Monetary Union(EMU) is to establish a single European currency called the Euro to substitute for the currency of the member countries. At present, the member countries include Germany, France, Belgium, Luxembourg, Austria, Finland, Ireland, the Netherlands, Italy, Spain, and Portugal. Process: European monetary system came from the European Monetary Union.OEEC-Organization for European Economic Cooperation established The European Payments Union in 1950 ,which was replaced by European Monetary Agreement in 1958. Although it did not have concrete ideas of monetary integration, it started the process of European monetary union. December 1969, the EC formally proposed the establishment of the European Economic and Monetary Union and designed the schedule, But the first 10 years of progress is not smooth. July 1978, in order to fight against the dependence on the U.S. dollar, they established the European Monetary System formally. In March 1979, European communities began to execute the construction plan of the European Monetary system. In December 1991, the 12 member countries of the European communities signed a treaty named Economic and monetary union treaty, which regulate that the EMU should be established no later than January 1st, 1999. At that time, a unified currency, a unified central bank and a unified monetary policy will be achieved. After the Maastricht Treaty was approved by...
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...Introduction Over the last 12 months, the excessive sovereign debt problems in Portugal, Ireland, Italy, Greece, and Spain which all are members of European Union led to a crisis in the global financial system. As the European Monetary Union members use the Euro as the common currency, they do not have abilities to use independent monetary policy, the solution of this debt crisis which can influence the whole global financial system becomes to difficult to be found. Chart 1: How country debts and budget deficits compare [pic] Source: Eurostat Newsrelease Euroindicators 2010 According to the Chart 1 above, the debt of Italy is 115.8% of GDP and Greece (115.1% of GDP) is closely followed, while Ireland has the highest budget deficit of 14.3% of GDP and next is Greece (13.6% of GDP). However, the European Union member states were required to have 3% for the ratio of the actual government deficit to GDP as market prices and 60% for the ratio of government debt to GDP at market prices (Treaty on European Union, 1992). It is clear that all member states shown above broke the standard of Treaty on European Union and have excessive deficit and debt relate to the GDP. Government debt is defined as the government borrowing in order to satisfy the short-term liquidity needs or the longer-term budget capital expenditures (Edirisuriya, 2010). The government debt usually can be caused as an accumulated governmental deficit over several years or several decades. A large scale of...
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...The Greek Crisis: Causes and Consequences Antonio Garcia Pascual Piero Ghezzi CESIFO WORKING PAPER NO. 3663 CATEGORY 6: FISCAL POLICY, MACROECONOMICS AND GROWTH NOVEMBER 2011 An electronic version of the paper may be downloaded • from the SSRN website: www.SSRN.com • from the RePEc website: www.RePEc.org • from the CESifo website: www.CESifo-group.org/wp T T CESifo Working Paper No. 3663 The Greek Crisis: Causes and Consequences Abstract Greece has reached a point where, under any plausible macroeconomic scenario, public debt will continue growing faster than GDP. Fiscal consolidation alone cannot close the solvency gap. A substantial reduction in the stock of debt is needed. Even post-debt restructuring, there is no guarantee that the government will succeed in its dual goal of restoring fiscal solvency and closing the competitiveness gap. Yet we think Greece stands a better chance of accomplishing these goals from inside the EMU rather than outside it. This chapter takes stock of the factors that led to the explosion of public debt, the loss of competitiveness, and the failure of the first EU-IMF programme. We also present our views on the likely debt restructuring (and post-restructuring) scenarios. JEL-Code: E600, F400. Antonio Garcia Pascual Economic Research Barclays Capital 5 The North Colonnade Canary Wharf E14 4BB, London United Kingdom Antonio.GarciaPascual@barcap.com Piero Ghezzi Economic Research Barclays Capital 5 The North Colonnade Canary...
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...Local Economy http://lec.sagepub.com/ The euro crisis Andrew Jones Local Economy 2011 26: 594 DOI: 10.1177/0269094211421748 The online version of this article can be found at: http://lec.sagepub.com/content/26/6-7/594 Published by: http://www.sagepublications.com On behalf of: London South Bank University Local Economy Policy Unit Partner Organisation: Centre for Local Economic Strategies Additional services and information for Local Economy can be found at: Email Alerts: http://lec.sagepub.com/cgi/alerts Subscriptions: http://lec.sagepub.com/subscriptions Reprints: http://www.sagepub.com/journalsReprints.nav Permissions: http://www.sagepub.com/journalsPermissions.nav Citations: http://lec.sagepub.com/content/26/6-7/594.refs.html >> Version of Record - Nov 17, 2011 What is This? Downloaded from lec.sagepub.com at UNIV OF GUELPH on November 17, 2013 Review article The euro crisis Andrew Jones Local Economy Policy Unit, London South Bank University, UK Local Economy 26(6–7) 594–618 ! The Author(s) 2011 Reprints and permissions: sagepub.co.uk/journalsPermissions.nav DOI: 10.1177/0269094211421748 lec.sagepub.com ´ ˜ Marco Buti, Servaas Deroose, Vıtor Gaspar and Joao Nogueira Martins (eds), The Euro: The First Decade, Cambridge University Press: Cambridge, 2010; 1048pp: ISBN 978-9279098420, £95 (hbk); Roy H. Ginsberg, Demystifying The European Union: The Enduring Logic of Regional Integration (2nd edn), Rowman & Littlefield: Lanham, MD, 2010;...
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... The Eurozone Debt Crisis Most of the people know how it feels to owe money, even if it is only to a mortgage company, or to a four-year college loan provider. But it is a different matter for an entire nation to be deeply buried in debt and unable to repay it. When a country drowns in debt, the government of that country usually seeks austerity as the major remedy of overcoming its debt crisis. Austerity promotes slow growth, and this actually makes the situation even worse due to the fact that world economy has become more open and integrated. In today’s world, there is no nation that exists in economic isolation. Every countries almost all the economic aspects- its education, health service, industries, service sectors, levels of income, and employment is integrated to the economies of its adjacent countries. This linkage plays a very important role in the global movement of goods and services, labor, investment funds, and technology. That is, when a country defaults on paying its debt, it not only affects the country in default, but also initiates a global economic crisis. In my research paper, I will tell the tale of eurozone debt crisis, which has created a global hysteria in the current world economy. In the research that follows, I will start with a brief history of the eurozone, how did eurozone face the debt crisis, and what might be ahead for the global economy, amid the ongoing European financial crisis. Eurozone is a term designated...
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...(unimaginably long) holidays, acting with apparent disregard for the dire predictions in the press of a European Union (EU) on the verge of bankruptcy and dissolution. Meanwhile, financial markets backed off from their attacks on the PIGS (Portugal, Ireland, Greece, and Spain) while those porcine countries moved forward with significant reforms, slashing their deficit and debt levels. German growth in the last quarter has driven eurozone growth to above U.S. levels, giving pause to euroskeptics and glee to euroboosters on both sides of the Atlantic. And yet the EU is far from out of the woods. The past two years of global economic upheaval have sorely tested the EU’s Economic and Monetary Union (EMU) and its crowning achievement, the euro. At base, the problem is simple: the EU is an outlier in political and economic history, and markets do not know what to expect from its unique combination of a single currency and separate nation- states. The eurozone crisis reveals the challenges of the EU’s sui generis political status—no longer a mere collection of nation-states, yet not a fully fledged federal entity. What, then, should we expect for the future of European integration? What does the stillunfolding eurozone crisis mean for the larger geopolitical position of the EU? Absent a crystal ball, any response is necessarily hazy and conjectural. Nevertheless, it is possible to sketch out some significant milestones and signposts that will determine the path of Europe’s future...
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...MACROECONOMICS Greek debt crisis: causes Instructor: Mou Hui Student: Galina Bogdanova JX1208903 Contents Introduction 3 Timeline of the Greek Debt Crisis 4 Causes 8 Internal 8 1. GDP growth rates 8 2. Unrestrained spending 11 3. Greek public debt 12 4. Statistical credibility 14 External Causes of the Greek Crisis 14 Influence on the evaluation of the crisis 15 Impact of the crisis on the country's macroeconomic indicators 18 Conclusion 22 References 24 Introduction International crisis 2008 has not only exacerbated the Greek economic situation, but has also intensely brought forward the economy’s deeply rooted and chronic weaknesses. The main argument of the paper is that the main cause of the Greek economic crisis is not the recent global economic instability, neither the outcome of political management practices of the latest Center Right government (2004-2009). Rather, the situation in Greece is the obvious outcome of a series of incorrect government choices and omissions during the last three decades and not a recent phenomenon at all. Greek economy fulfills the main criteria of a “weak economy”. Economic and fiscal measures undertaken by the Socialist government under the guidance of the IMF will fail to succeed unless they are followed by clear, transparent development initiatives, which is not the case until now. The purpose of this paper is to approve that the current Greek crisis is the consequence of inappropriate domestic...
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