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... s an opportunity to demonstrate their hegemony. The most important components of the SGP are that governments accept a 3 % budget deficit maximum except under very specific circumstances of negative growth, and a balanced budgeted over the cycle and within the foreseeable future. The institutional vehicle that assures compliance with these provisions is Ecofin which organises what is called mutual surveillance.
By the end of 2002. it had become increasingly obvious that the SGP was operating along very different lines than those envisioned by the architects. Most importantly in the only instance in which the excessive deficit procedure could have been invoked, in February 2002, when the German deficit came very close to the 3 % deficit ceiling the letter of the SGP which called for a low-level reprimand, was not followed. In contrast, when Ireland ran a budget surplus a year earlier, the Council of Ministers voiced a strongly worded concern that Ireland was adopting economic policies at odds with the broader agreed-upon goal in the EU and EMU. Therefore economists, for instance the British business magazine: the Economist, call for reforming this apparent inadequate safeguard: For example, some French officials argue that Brussels should be less strict with countries that have relatively low levels of public debt. A budget deficit, they argue, is one thing in heavily indebted Italy.
A deficit is less serious in France or Germany, whose public balance- sheet is in a better state. But would this reform not turn the common monetary into a political battlefield- the large states such as Germany and France versus the smaller ones? Rather than giving each country the same status and not sacrificing the smaller states for the good of the larger? Even Lang, whose book analyses whether the Maastricht Treaty is aim and -function adequate argues: Es bear kernel umfangreichen juristischen Interpretation dieses Vertragsartikels. , um auf etwa ige Schwachstellen aufmerksam zu machen.
Allein der logische Menschenverstand former auf zu hinter fragen, welche Sinn es macht, einen onegin schon finanziell schwachen Staat zur Sanktionierung seines Haushalsdefizits mit einer weiteren finanziellen Be in Form einer Geldstrafe zu beaten. Auch ist die Androhung, die Verletzung der Haushalsdisziplin zu ver ffentlichen und damit Gruppendruck auf die Staaten auszuben, nur dann von Working, wenn alle Beteiligten die vorgegebene Haushaltsdisziplin when. The European Central Bank, as a new institution created by the Maastricht Treaty, takes the coordinating role of this economic and monetary union. The question arises if its architecture is adequate and whether it can deal with the economic differences of the member states. Obviously, a middle of the road monetary policy has its problems. Interest rates may be to high for a country with low activity and failing to comply with the SPG, interest may be to low for a country with high growth and high inflation rates.
One may argue that Germany and France under the impact of the ECB and the SGP cannot take the necessary measures against recession reflate the economy and raise deficit spending. In terms of its monetary policy strategy, ECB Governing Council has repeatedly had to contend with the accusation of a lack of transparency. Criticism was mainly aroused by the unclear weighting of the two pillars in the event conflict. The ECB has now improved its communication with the markets to the extent that its interest rate decisions are, as a rule, correctly anticipated by the markets.
But it still has to be said that the two-pillar strategy, owing to its complexity, makes heavy demand on the Euro systems communication policy. Following a two pillar strategy the ECB council neither ignores the possible threats by monetary expansion nor does it feel bound by monetary orthodoxy. It is true, that inflation is also determined by a couple of non-monetary variables. In addition, growth of monetary aggregates can be disturbed by special determinants such as portfolio effects. Therefore, their suitability as indications may suffer. As a consequence, the ECB council pursues a more broad approach.
A second pillar is added. In monitoring the price developments and determinants the ECB-council judges the inflation expectations over the medium term. For the euro-area the financial markets, the introduction of the euro has had far-reaching implications. These include, in particular, the rapid convergence of the national market to form a fully integrated euro money market, the strong growth in the market for euro-dominated corporate bonds as well as the wave of consolidation in the case of banks and stock exchanges. It has gradually become apparent, however, that a complete integration of the financial systems is currently still hindered by the large number of regulatory, tax and legal obstacles and eliminating these obstacles is proving to be complex and arduous. Lets now turn to the more practical elements of the Monetary Union.
EMU works. The introduction of workable common instruments for the monetary policy, the proper functioning of payments systems and the harmonisation of statistical methodologies are crucial to the success of the union. The 2002 cash changeover worked without a hitch. In order to smooth the final changeover, the banks were supplied with notes and coins in advance. The banks in return supplied the retailers with new cash.
By 4 pm. on the 2 nd of January, an average of 92 % of automated teller machines had been converted to dispense euro notes across the 12 countries. Moreover, the new cash rapidly gained overwhelming acceptance. The old currencies were therefore withdrawn much more quickly that expected. This also led to an exceptionally high demand for low-denomination euro banknotes and coins and even caused some short- term bottlenecks.
The changeover had given rise to fears of inflation. But as is seen in Table 6, the changeover itself did not have a major impact on the consumer prices. Nevertheless, a year after the changeover, perceived inflation diverges significantly for the actual low rate of inflation. (see table 2). They attach greater importance to price developments in goods and services which they buy more frequently and pay for in cash.
However, the HICP does not cover a broad basket of goods. Higher perceived inflation occurred in Germany, but in the course of 2002 also in other member countries. The outlook for EMU in the medium term future depends first and foremost on the enlargement process and the unions ability to cope with it. The ongoing enlargement of the European Union and joining EMU represent the most important challenges. The heterogeneous nature of monetary union will increase along with enlargement - labour and goods markets therefore need flexible adjustment and mechanisms.
The single monetary policy is a catalyst for reforms in other policy areas. The economic criteria for a successful monetary union, the European bank System of Central Banks should be reformed to cope with the enlargement. The present structure was designed for a 15 member monetary union. Reform should take account of the fact that, in a few years time, the EU could comprise as many as 27 members. Hankel illustrated his concerns about the impact of the East Enlargement by using Poland as an example: Wie known Beitrittskandidaten der osteuropischen Peripherie die EU: und EZB- offiziellen Stabilittskriterien vertragesgerecht und ohne Gear und den Integrationsprozess ellen? Polen...
wird auf here Exportquoten fr seine Agrarprodukte wie auch seine billion und durch aus qualifizierten Arbeitskrfte auf den Westmrkten driven. Nur: Selbst wenn die EU- Organ beiden Forderungen nach geben... : wird er nicht dazu kommen. Polens westlife EU- Nachbarlnder- allen van Deutschland- werden sich unter dem Druck von Agralobby und Tarifparteien gegen being Import so lange wie munich spurred! Hankel argues that the test case Poland shows how the monetary union without balance mechanisms as exchange rates and transfer services in an disintegrated, through national tariff systems as culture and language borders, compartmentalized, labour market works, and how then EMUs plans for deepening will counter effect and cause discrepancy between the member states.
In political terms the EMU has enhanced, in the sense that the euro-area countries are more or less forced to communicate now even in an economic basis. In foreign policy terms faction- building and power struggles may arise more commonly but when prosperity and welfare of the state is at stake the member countries soon will realise that it is more effective to pull at the same string. For instance the weaker member states as Spain or Portugal did not experience the weight of the declining world economy as server as they would have without the Euro. The sum up the arguments, the EMU is not without problems, but it is not a disaster in the sense of a complete failure. In fact the EMU has turned out to be nothing like a disaster and it would be difficult to prove otherwise. Its success is yet to be determined.
Growth has not been fostered by the EMU, but growth was subdued anyways by international recession. The Euro started weak but has gained recently. Under the impact of recession the SGP is very much under restrain but still holds so far. Time will show whether the EMU really is the EUs greatest setback in history or another milestone into the direction of a united Europe.
Abbreviations EU European Union ECB European Central Bank EMU European Monetary Union GDP Gross Domestic Product HCIP Harmonised Index of Consumer Prices SGP Stability and Growth Pact Bibliography Pearsall, J. (ed. ) (1999): The Concise Oxford Dictionary (Tenth Edition) Oxford University Press, Oxford. Hankel, W, Nlling, W, Schachtschneider K, Star batty, J (2001): Die Euro-Illusion, Ist Europa noch zu return? Rowohlt Taschenbuch Verlag, Hamburg The Economist: Rules are made to bend, arent they? . Jul 25 th 2002 Stierand, H (2002): Geldpolitik im Europischen System der Zentralbanken (ESZB), Winkler Verlag, Darmstadt Range, B (2001): Die Europischen Wirtschafts und Whrungsunion zwischen Anspruch und Wirklichkeit (The European Economic- and Monetary Union between expectations and reality) Peter Lang, Frankfurt Stierand, H (2002): Geldpolitik im Europischen System der Zentralbanken (ESZB), Winkler Verlag, Darmstadt web r 021122 b.
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Research essay sample on Is The European Monetary Union A Disaster
