Euro/OCA

Question 1

What is monetary integration?

Answer 1

Move towards common currency

Question 2

What is the Maastrict treaty?

Answer 2

Describes how the system would work in great detail, set the conditions and evaluated fulfillment of criterias.

Question 3

What is the snake in the tunnel?

Answer 3

The European response to the collapse of the Bretton Woods system. It was a very loose arrangement, and when the inflation rose in the 70s, divergent monetary policies lead several countries to leave the snake.

Question 4

What is the goal of the european monetary system?

Answer 4

To stabilize inflationand stop large exchange rate fluctuations between neighbouring nations. It was succeeded by the european economic monetary union that introduced the euro.

The european currency unit (ECU) was defined to be used as a basket of national currencies instead of gold

Question 5

What is the stability and growth pact?

Answer 5

a set of rules designe din 1997 to ensure that countries in EU pursuit sound public finances.

Question 6

Define price stability:

Answer 6

a year-on-year increase in the harmonized index of consumer prices (HICP) for the eurozone of below but close to 2%

Question 7

What is the average euro zone inflation?

Answer 7

1.98%

Question 8

Name possible causes for large inflation differentials.

Answer 8

• productivity catch-up
• autonomous wage and price setting
• policy mistakes
• asymmetric shocks
• wrong initial conversion rates.

Question 9

Why join an OCA?

Answer 9

• reduction of transaction costs
• price transparency
• elimination of exchange rate risk
• encourages more trade
• better wuality of monetary policy

Question 10

Name euro area difficulties.

Answer 10

• diversity –> asymmetric shocks

- symmetric shocks may elicit different policy responses due to policy preferences of different societies

Question 11

What are the OCA criteria?

Answer 11

• labour mobility
• trade opnness
• product diversification
• fiscal transfers –> compensate each other
• homogeneity of preferences –> consensus on shock deal
• commonality of destiny

Question 12

Name reason for why the euro area will or will not break up.

Answer 12

yes:

• failure to establish fiscal discipline gap between well-functioning north and badly wounded south
• self-fulfilling process from non-believing international investors

no:

• break-up would have catastrophic implications
• new currencies would have to be printed and reintroduced
• no legal procedure for a country to leave the euro zone
• deeper problem has been mismanagement of the crisis