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- European Union
- 27 member countries; 489 m people EU GDP > US GDP ($14 trillion) 1951 : 6 members of Coal and Steel community 1957 : Treaty of Rome: European Community France, Germany (W.), Italy, Belgium, Netherlands, Luxembourg 1973 1st enlargement: Britain, Ireland, Denmark
- Single European act 1987-1992
- Remove all frontier controls Principle of mutual recognition to product standards Open public procurement to non-national suppliers Lift barriers of competition to banks and insurance Remove restrictions on foreign exchange transactions Abolish restriction on cabotage (trucking)
- Three stages of the monetary union (MU)
- 1990 lifting of controls on the movement of financial capital within the EU 1994 creation of the European Monetary Institute in Frankfurt 1999 introduction of the common currency, the Euro, and the creation of the European Central Bank To qualify, members had to meet convergence criteria—monetary and fiscal requirements
- The Euro
- Was a part of Maastricht treaty: European common currency adopted 1/1/99 Common foreign and defense policy Common citizenship EU parliament with “teeth†€ now used by 16 countries (since 1/1/02) Britain opted out 10 new countries have to qualify
- Pros of Euro
- Lower transaction costs for individuals / business Prices comparable across the continent; increased competition Rationalization of production across Europe to reduce cost Pan-European capital market Increase range of investment options available to both individuals and institutions
- Cons of Euro
- ECB has monetary policy control (supranational control) Sets interest rates, monetary policy Instructs national central banks EU has problems with an optimal currency area Few similarities in structure of economic activity (e.g., Finland vs. Portugal) Interest rates too high in depressed regions or too low for economically booming regions May need fiscal transfers from prosperous to depressed regions