EU Economy and Currency

EU Economy and Currency

The economy

In January 2002, the single currency, the euro, definitively replaced the franc, the D-mark, the lira and a number of other national currencies. Not all EU countries could or did not want to abandon such a large part of the sovereignty of the nation state. Sweden, Denmark and the United Kingdom chose not to participate. Six more EU countries are outside the euro because they do not yet meet all the economic conditions. The entry requirements are a low central government debt, balanced central government finances, low inflation, a balanced exchange rate and low interest rates.

The countries that do not participate in monetary cooperation do not participate when the euro zone finance ministers meet to discuss economic coordination once a month. They enter the discussions the next day, when the EU as a whole holds a meeting of finance ministers.

However, according to COUNTRYAAH.COM, all EU countries are part of the EU’s economic union. This has a less mandatory character for non-euro countries, but still establishes a relatively strict framework for all. The euro crisis of 2009 led EU countries to tighten the requirements for good housekeeping.

The economic year for an EU country now looks like this:
In late autumn, the European Commission will present an annual growth report with proposals for priorities for the EU countries’ economic policies. It is discussed by all finance ministers who are expected to start from this when they then lay down national budgets.

At the same time, the Commission publishes the macroeconomic imbalances it has found in the countries that risk developing into a “bubble” and making the economy unstable. The European Commission may choose to initiate a closer examination if a risk to stability is perceived as urgent.

In March, the European Commission will deliver country reports with detailed analysis and forecasts of the economy and potential problem areas.
In April, all EU countries must submit an annual economic plan (“convergence program” for non-euro countries such as Sweden, “stability program” for others) and their national budget bill.

In May, the European Commission will issue tailor – made recommendations to each country with proposals for action. These will be discussed and hammered out by the finance ministers in July.
For the euro countries, monitoring is tougher and a country that does not follow the recommended measures is warned and risks fines.

In October, eurozone countries will have to submit their drafts of next year’s national budget bills. Also these nail polish by the European Commission and can end in recommendations for action. The country being criticized must convince a qualified majority of finance ministers to go against the Commission in order to avoid making corrections.

A rule for national budgets is that expenditure must not increase faster than the country’s medium-term growth, if it is not possible to show income that can match expenditure. Countries with budget deficits should aim to strengthen their structural budget balance annually by 0.5% of GDP.

Euro countries must by law introduce automatic correction if their country’s structural deficit exceeds 0.5% of GDP. The idea is that the EU can allow a little more flexibility if a country has a stable structural basis.

Since the introduction of the euro, the country with a large national budget deficit (3% of GDP) has been closely monitored by the European Commission. The country has short deadlines to solve the problem (normally three months). Following the euro crisis, a similar process was introduced to monitor government borrowing. It strikes if borrowing exceeds 60 percent of GDP.

In general, euro area countries must submit to calls for action to correct a risky situation, while non-euro area countries are not obliged to do so.
Figures, assessments and warnings are always published. The markets usually drive up interest rates for a country that is in a bad situation and this extra pressure is considered a welcome extra help to be able to achieve a strict economic discipline in the EU.

Currency

The euro got off to a solid start and, after a few years of a stable exchange rate and low inflation, had established itself as one of the world’s most desirable currencies. But in the wake of the global financial crisis that erupted in full force in 2008, cracks were revealed in the economies of several European countries.

At the beginning of 2008, all euro area countries respected the rule of not having a government budget deficit larger than 3% of GDP. In the summer of 2010, all euro area countries exceeded that limit, as did most other EU countries.

Added to this was the discovery that the euro country Greece had been lying about its economic situation for several years in order to join the eurozone. There was a tumult in the markets and other euro countries were forced to lend money urgently. As a counterclaim, Greece was placed close enough under compulsory administration. The loans that kept the country under wraps were paid out in installments, only after crisis measures had been voted through the Greek parliament.

Ireland then had to ask for support since its government had promised to cover the losses of all Irish banks, which quickly resulted in large gaps in the treasury. After that, it was Portugal’s turn to turn to colleagues for emergency loans.

In the affected countries, people demonstrated against forced cuts and austerity measures. German, Finnish and Dutch voters instead received angry protests against having to help other countries when times were already difficult. It was clear that the relative independence in economic affairs that the euro countries had maintained, despite the single currency, had become unsustainable. When one crashed, the others were dragged along.

EU Economy

Comments are closed.