8.4: Regional Economic Integration in Europe

Question 1

What are the two major trade blocs in Europe?

Answer 1

The European Union (EU) and the European Free Trade Association (EFTA).

Question 2

How many member states does the EU have as of the text’s writing, and why did this number change?

Answer 2

The EU has 27 member states due to the United Kingdom exiting the union on 31 January 2020.

Question 3

What were the founding goals of the European Union?

Answer 3

The founding goals of the EU were to ensure lasting peace and to enable European nations to maintain their political and economic influence on the world stage.

Question 4

What was the predecessor to the EU and what was its objective?

Answer 4

The predecessor to the EU was the European Coal and Steel Community (ECSC), formed in 1951, with the objective of removing barriers to intragroup shipments of coal, iron, steel, and scrap metal.

Question 5

What did the Treaty of Rome establish in 1957?

Answer 5

The Treaty of Rome established the European Economic Community (EEC), which provided for a common market with the elimination of internal trade barriers and the free movement of factors of production among member states.

Question 6

When did the European Community become the European Union?

Answer 6

The European Community became the European Union in 1993 following the ratification of the Maastricht Treaty.

Question 7

How did the Greek sovereign debt crisis affect perceptions of the euro?

Answer 7

The Greek sovereign debt crisis led to concerns that countries with large public deficits could undermine the value of the euro, necessitating bailouts from economically stronger EU countries.

Question 8

What are the predicted effects of the single-market program within the EC?

Answer 8

The single-market program was expected to lower costs of doing business, promote economies of scale, and increase competitive intensity, thereby making EC firms more efficient.

Question 9

How did the European Union respond to the Greek financial crisis, as mentioned in the text?

Answer 9

Greece received more than $330 billion in bailouts and implemented austerity measures to address the financial crisis, aiming to fix the country’s finances and reduce dependence on foreign aid.

Question 10

When was the Maastricht Treaty signed, and what did it commit EC members to?

Answer 10

The Maastricht Treaty was signed in February 1992, committing EC members to adopt a common currency by January 1999.

Question 11

How many member states of the European Union use the euro?

Answer 11

As of the text provided, 19 of the 28 member states of the European Union use the euro.

Question 12

What criteria must EU countries meet to adopt the euro?

Answer 12

Countries must meet economic criteria including a high degree of price stability, a sound fiscal situation, stable exchange rates, and converged long-term interest rates.

Question 13

How did the EU sovereign debt crisis of 2010-2012 affect some countries’ plans to adopt the euro?

Answer 13

The EU sovereign debt crisis persuaded many of these countries to put their plans to adopt the euro on hold.

Question 14

What does the adoption of the euro signify politically for EU nations?

Answer 14

The adoption of the euro represents a significant political feat where national governments gave up their own currencies and control over monetary policy, reflecting the importance that Europeans place on the common currency.

Question 15

Where does the euro stand in terms of global currency trading?

Answer 15

The euro is the second most widely traded currency in the world after the U.S. dollar.

Question 16

What are the savings benefits for businesses and individuals with the euro?

Answer 16

Businesses and individuals save on currency exchange and hedging costs, which according to the European Commission, amount to about 0.5 percent of the European Union’s GDP

Question 17

How does the euro promote competition within the EU?

Answer 17

The common currency makes it easier to compare prices across Europe, increasing competition and allowing consumers to shop around, potentially leading to lower prices

Question 18

What effect does the euro have on the European capital market?

Answer 18

The introduction of a common currency has helped develop a highly liquid pan-European capital market, lowering the cost of capital and increasing both the level of investment and the efficiency of how investment funds are allocated.

Question 19

How does the euro affect investment opportunities in Europe?

Answer 19

The development of a pan-European, euro-denominated capital market has increased the range of investment options for both individuals and institutions, facilitating diversification of investments and increasing the efficiency of capital allocation.

Question 20

What key issue influences the debate about the euro’s ability to survive?

Answer 20

The lack of a European treasury and the limitations it imposes on the ECB’s ability to assist member-states, the stance of countries like Germany against measures that might stoke inflation, and the fairness of bailing out countries that have lived beyond their means are central to discussions on the euro’s longevity.

Question 21

“optimal currency area definition

Answer 21

“optimal currency area
A group of countries where similarities among the economic structures of countries make it feasible to adopt a single currency.”

Question 22

What was the initial trading history of the euro after its establishment in 1999?

Answer 22

The euro had a volatile trading history, starting at €1 = $1.17 and dropping to a low of €1 = $0.83 by October 2000.

Question 23

What major reason contributed to the fall in the euro’s value in the early 2000s?

Answer 23

A major factor was the flow of capital out of Europe into booming U.S. stocks and bonds, which led investors to sell euros and buy dollar-denominated assets, decreasing the euro’s demand.

Question 24

When did the euro reach its all-time high value, and what was it?

Answer 24

The euro reached its all-time high of €1 = $1.54 in early March 2008.

Question 25

By the end of 2017, what was the euro’s contribution to global foreign exchange reserves?

Answer 25

By the end of 2017, the euro accounted for about 20% of global foreign exchange reserves.

Question 26

What event in May 2010 marked a significant point in the eurozone crisis?

Answer 26

In May 2010, to prevent a sovereign debt crisis, the eurozone nations and the International Monetary Fund (IMF) agreed to a €110 billion bailout package for Greece.

Question 27

What is the European Stability Mechanism and what was its purpose?

Answer 27

The European Stability Mechanism, worth about €500 billion, was set up to restore confidence in the euro by providing a permanent bailout fund for the eurozone.

Question 28

What fiscal agreement did 25 EU countries sign in January 2012?

Answer 28

In January 2012, 25 of the then 27 countries in the EU signed a fiscal pact to enforce stricter rules on government deficits.

Question 29

What is one limitation of the European Central Bank (ECB) in assisting eurozone member states with excessive debt?

Answer 29

The ECB is limited in assisting with excessive debt by printing more money because it would require the approval of all EU member states, not just the 18 that use the euro as their national currency.

Question 30

Why do the United States and Canada have a vested interest in the stability of the euro?

Answer 30

The collapse of the EU or the euro would significantly impact the U.S. and Canada, as both are major export destinations for these North American economies.

Question 31

How did the sovereign debt crisis affect countries’ views on joining the eurozone?

Answer 31

The crisis exposed a flaw in the eurozone, causing countries like Poland and the Czech Republic to put their plans to adopt the euro on hold, not wanting to bail out profligate governments of other member states.