Economics of European Integration

ECONOMICS OF EUROPEAN INTEGRATION 12/12/11

1. Theory of OCA

2. Study stages of de Delors report? With respect to monetary union (studied stages of monetary union and the criteria to access to the EURO:

MAASTRICTH CRITERIA FOR JOINING THE EURO: established in 1991

* Deficit has to be below 3% GDP

* Gross debt below 60% of GDP

* Inflation rate can’t exceed the average of the three lowest inflation countries by more than 1.5%

* The nominal long-term 10 year interest rate must not be more than 2 percentage points higher than in the three lowest inflation member states.

* Join the exchange rate mechanism fix the value of your currency with respect to the rest of the currencies in the EU and be within the limits for at least 2 years. (Basket of currencies the ECU where other currencies could fluctuate around it the margins were +- 2.25% in the crisis extended to +-15%)

IS THERE SOMETHING MISSING?

Perhaps measuring in equal terms the magnitudes

How much has to do with money? Only inflation, interest rates price of money, exchange rates prices of money abroad: MONETARY POLICY (money market LM)

The rest have to do with politics and accumulated debt: FISCAL POLICY: these control IS line

What they were trying to control is the amount of economic activity of the public sector.

ALL HAVE TO DO WITH THE AGGREGATE DEMAND.

NO CRITERIA FOR THE AGGREGATE SUPPLY e.g (free competition, nothing in the Maastricht criteria only in the original treaties, R+D, how many workers do we need to have)

So OCLA: labor mobility etc there is nothing of this in the Maastricht criteria.

WHY???? ADemand can be influenced by policy makers while the ASupply cannot be. ASupply is about companies, it is not easily influential by governments and central banks only long-term policies higher education, larger infrastructures…. but even with these conditions, the aggregate supply will not move because it depends on the decisions of...