Assignment 5

Prévia do material em texto

Assignment – Exchange rates: Part 2
Connect to the European Commission’s webpage :
https://ec.europa.eu/info/about-european-commission/euro/history-euro/history-euro_en
Read the main text as well as the related links. Then, discuss in less than 2,000 words the history, the objectives, the functioning and the ongoing challenges of the European Economic and Monetary Union.
A brief history of the EMU: 
During the second half of the 20th century, the European countries have always search for a safer and stable common market. From the 50’s until 1970, a system of common prices was installed but ended after 13 years due to big variations of exchange rates. 
Several systems were then put in place with an objectives of minimizing the exchange rates fluctuations. Unfortunately, due to the lack of flexibility, it ended when the petrol crisis and other shocks occurred. 
In order to provide flexibility with the outside world while keeping the exchange rates of EU members relatively close, the EMS was created. This system consisted in keeping all the exchanges rates of all currencies of the members inside a specific range of values. The main tracker was determine as the average of all the exchange rate of the members. This system did not last over a decade but the benefits of it (stability, higher GDP) were real. 
In December 1991 took place a reunion of the European council in Maastricht. From this event was created the actual European Union as we know and all of its organization was exposed in the Maastricht Treaty. A big layer of the treaty exposed an economic organization inside the EU with stronger bonding between members: the EMU. The mains three parts of it were installed progressively. First, the free movement of capital was settled inside the zone. The central bank was created and became in charge of the monetary policies. Finally, a single currency was decided and putted in place in 2002. 
Long term and short term objectives:
The objectives of the EMU is to create a common market with stability, free movement of capital, low inflation (2%), higher employment and growth. Detailed and short-term objectives are settled every year and served for the 3 coming years. They result from a discussion between the EU institutions and the governments and set the guidelines for both European Union and its country members. 
Overview of the different actors:
Within the EMU is a complex organization with a lot of layers of organization with a large diversity of actors. The tasks are shared between EU institutions, governments and the ECB. The European council set the big objectives for the EU. The European parliament is in charge of the legislation aspect and the European commission is in charge of the executive part and the monitoring. A group called Euro Group is then in charge of the coordination of the policies of Eurozone members. Each member state has then a role to play in its fiscal and economic policies. At the top of the decisions concerning monetary policies in the euro zone is the European central bank which is independent from other institutions. 
Integration and cooperation policies:
To reach the goals presented below, the EMU has put in place several policies. 
The two mains policies are the single currency and the free movement of capital. The first was installed in 2002. The second was putted in place a decade before and is still the backbone of the European market. Thus this policies needed also some international cooperation to function. 
In order to maintain a good and stable market, the countries of the EMU has to have a merely similar monetary policy between the Eurozone and the other members. This policy is important to reach the optimal inflation. This will also limit the exchange rates manipulations between countries of the Eurozone and the others. The European central bank is in charge of the exchange rates and interest rates of the euro zone and it is independent. Its decisions are taken by the members of the board but also by the governors of the central banks of the euro zone. 
Within, the EMU, some powers are left to the governments in term of economic and fiscal policies. However, these policies are coordinated for the good of the Union and each states has to validate some requirements. These requirements are settled in the Growth and Stability Pact. The two main are that the government deficit has to be less than 3 % of the GDP and the total debt of the government shouldn’t be higher than 60% of the GDP. This will insure that all government’s solvability and to have a good and homogeneous economic context in the area. The European semesters objectives were created to coordinate even more closely the politics of European countries.
In order to limit crisis and due to the recent events with Greece, the EU has adopted into its law the fiscal compact. The fiscal compact was a part of a treaty that was already in place in most of the countries since 2013. In this treaty is require that the government has to target a balanced budget, with monitoring of an independent institution. Alongside is also needed policies to reestablish a balanced budget if some deviations are observed. 
In addition, a narrow monitoring and surveillance has been increased on the financial institutions inside the euro zone to prevent from crisis (similar to the subprimes crisis) to happen. 
An organization facing troubles and challenges:
One of the challenges that EMU is facing is the monitoring of the financing situation of the government’s budgets. The economic requirements asked by the EU has to be applied in order for them to enter the euro zone, but also in order to stay in without disturbing its order. That’s why a more strict and efficient system of surveillance has to be putted in place. This challenge is linked with the will to increase the euro zone with new members. 
The banking system has to be strong in order to prevent from any type of crisis. It has also to be exempt from any fraud and any type of corruption or falsification. 
One of the main objectives of EMU is to have a political union with governments of each members aiming at the same economic objectives. However, there is always disagreements between members or between countries and EU institutions. It is then really tough to set coordination context. 
Even if the benefits of the market are felt by each countries of the EMU, the standards of living of the populations of the countries is still widely diverse and unfair. The disparities in legislation between countries (working conditions, subsidies…) is still a major problem for the well-being of all the populations.