Revision Presentation - EU & the Euro Debate

This revised and extended revision presentation examines the debate about Europe’s Single Currency.

Launch revision presentation on EU & The Euro Debate

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Basic Euro History

1991: Maastricht Treaty – pathway for Euro
1999: Euro starts life as a currency
1999-2001: Original members of system lock their currencies for two years
2002: Notes and coins come into circulation
2007: Slovenia becomes first of the new member states to enter the currency union
2008-09: Three new nations – Slovakia, Cyprus and Malta – the Euro Area extends to 16 nations

Euro essentials

Monetary union is a deepening of economic integration between participating countries
A single currency requires a common interest rate for the Euro Zone – i.e. a common monetary policy
Countries have locked their currencies together forever and adopted one currency as a medium of exchange
Euro as a currency floats against US dollar and sterling
Member nations are also required (in principle) to keep control of government borrowing i.e. They are not allowed to run large budget deficits > 3% of their GDP (in normal times)

Challenges facing the Euro Zone

1/Little common fiscal policy
Big differences in size of fiscal deficits and debt levels
Fiscal stability pact has effectively collapsed

2/ Growing risk of one or more Euro Area countries defaulting on some of their debts
Will Euro Area nations bail out fellow members?
Years of fiscal austerity for some nations will create deep economic and social pressures

3/ Doubts about the likely strength of recovery
Unemployment high and rising

4/ Longer term challenges
Growth and employment creation in the Euro Area has not been noticeably higher than in countries outside the currency union
2008-10 crisis has highlighted the problems of setting a common interest rate for 16 nations
Larger economic imbalances within the 16 nation currency union over wage levels, trade balances and productivity will also need to be addressed if the Euro Zone is to avoid future crises
Several weaker countries have become uncompetitive inside the Euro and this requires painful corrective policies which will be unpopular

Rising cost-push inflation could lead to higher interest rates and choke off confidence as recovery starts