Lecture 13
EMU
1. History of EMU
oTreaty of Maastricht 1992; includes EMU and 3 stage plan to establish EMU:
1.) monetarists
2.) 1994-1998 governmnets agreed on the name of the new currency, ECB was created
and SGP (ms behave fiscally) – art. 191 TFEU
3.) ms joined the euro 1999 who met the SGP criteria
Further economic coherence idea
In reality this did not live up ; exacerbated problems – more distinction between
monetary and fiscal policy -> mp – centralized – excl. competence of the EU
Central banks > ECB as a last resort
SGP
oPreventive arm – submit stability programs, they should relay that the GDP deficit did
not go bellow 3% and debt below 60% of GDP
oFrance and Germany – deficits in 2001-2003 – the Council did not adopt measures, the
Commission
2. Sovereign debt crisis -> Collapse of Lehman investment banks (it held too many toxic
assets- mortgages that could not be repaid; financial deregulations in the US (1970s
onwards))
2008 financial crisis in US => 2010 sovereign debt crisis /countries that have debts,
countries refinance these debts by selling government bonds to investors, risk in borrowing
money/
North-South differences; structural imbalances (Greece could not raise new money and risked
default; Irish banks bought lots of toxic assets from US banks -> bloated the Irish state and IR could
not repay its debts; Spain – liquidity crisis: could not borrow any more debts from the financial
markets)
Common factors:
oStructural differences – inflation rates > asymmetries between Germany and other ms;
oStrong single currency – they could borrow money but did not look at the economies of
the ms borrowing.
Fiscal irresponsibility
Monetary policy is exclusive competence of the EU: no devaluation of currency
= Spread of risk among ms
3. The bailouts
Temporary loan programs:
a> EFSM:
Legal basis / art. 122(2) TFEU – created by regulation 407/2010
