The Economics Of European Integration 6th Edition Richard E. Baldwin, Charles Wyplosz - Solutions

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Develop the case for (or against) a fiscal union.
Austerity has been a very controversial approach. What else could have been done?
Imagine a break-up of the Eurozone. What might be the consequences?
Should subprime lending have been subject to rigorous consumer protection and, if so, what would you propose?
Why has the sovereign debt crisis spread only within the Eurozone?
What is the OMT programme? Why has it been so successful?
What is the problem with large public debts?
Explain the debate surrounding the fiscal multipliers.
What are stress tests? How are they related to trust in the banking system?
What are the possible reasons behind the outcomes shown in Figures 19.13 and 19.14?
Explain why banks and governments have been caught in a situation whereby they can weaken each other.
List the possible reasons why the sovereign debt crisis has been limited to the Eurozone.
Explain why the phenomenon of multiple equilibria may lead to self-fulfilling crises.
Why were subprime mortgage loans so dangerous?
Why did bank deregulation create the conditions for a financial crisis?
per cent of its GDP. What can happen when Brexit occurs?
Finance is a major industry in the UK, accounting for some
Suppose that you are in charge of resolving a failing bank. How would you go about it?
The ECB has been given a major role in bank supervision. Is this a good thing?
What is the case for centralization of bank supervision in the Eurozone? The case against?
"The real reason why Eurozone countries can't agree on a single supervising agency is that each one wants to protect its own financial institutions.' Evaluate this view.
In the example of Figure 18.1, risk perception leads to a higher interest rate as faced by the private sector. What can the central bank do to resist this interest rate increase?
Why is centralization of bank supervision in the Eurozone resisted?
What is the difference between regulation and supervision?
Explain how the three functions of money apply at the international level.
What is capital requirement? What is a leverage ratio?
What is the SSM? The SRM?
Why can't the ECB conduct a single monetary policy when the financial system is fragmented?
How do we know that bond markets were unified in the Eurozone upon the launch of the euro? Why has this not happened for stock markets?
What is the difference between bonds and shares?
What is bank resolution? How is it conducted?
Diversification: is it always the case that holding more assets reduces risk?
How do financial markets establish a risk premium for each and every asset that is traded?
What is maturity transformation? Why is it risky?
Describe the phenomenon of information asymmetry. How can it explain why banks refuse credit to some customers? How can it contribute to systemic risk in financial markets?
In making its decision on whether to join the Eurozone, the UK Treasury studied the Stability and Growth Pact and stated:HM Treasury (2003), Fiscal stabilisation and EMU, Crown Copuright. Where debt is low and there is a high degree of long-term fiscal sustainability, the case for adopting a
Some countries argue that the monetary union needs a common fiscal policy to match the common monetary policy. Evaluate this view.
Does a debt default by a member country make it impossible for this country to remain in the Eurozone?
Compare majority voting, qualified majority voting and reverse qualified majority voting.
Why is there a contradiction between the Stability and Growth Pact and sovereignty in budgetary matters?
Explain why fiscal policy would be strictly confined to the automatic stabilizers if the SGP required that the cyclically adjusted budget be balanced every year. What difference would it make if the cyclically adjusted budget had to be balanced on average over business cycles?
Compare the Stability and Growth Pact and the German debt brake.
In the right-hand chart of Figure 17.1, choose a country and identify how it differs from the EU average in the left-hand chart. What explanations can you imagine?
What is the intended purpose of the Stability and Growth Pact?
Explain the no-bailout clause.
What are externalities and spillovers? How do they operate in the case of fiscal policy?
In Figure 17.2, identify years when fiscal policy is pro-cyclical, and years when it is counter-cyclical.
What is the difference between actual and cyclically adjusted budgets? Why are discretionary actions visible only in changes of the cyclically adjusted budget balance?
A perception exists that the ECB is too far away from people's concerns. Comment.
'The crisis that started in 2007 has shown that central banks cannot just focus on price stability. Financial stability is as important.' Comment.
The convergence criteria concern nominal conditions (inflation, deficits and debts) but not real conditions (GDP per capita, growth). This was understandable for the original founders but should the same criteria still apply?
Why are transparency and accountability so important for the Eurosystem? What kind of difficulties can you envision if the system is perceived as not sufficiently accountable? Not sufficiently transparent?
The Maastricht Treaty describes in minute detail the creation of the Eurozone but is silent on a possible break-up. Imagine that a country is suffering from a severe loss of competitiveness. Could it leave? How? What could the other countries do to try to keep it in?
The Eurosystem asserts in its deliberations that it never pays attention to local (i.e. national) economic conditions. The reason is that there is a single monetary policy and that 'one size fits all'. Discuss this approach and imagine alternative approaches.
Can you imagine different entry conditions based on OCA principles?
Is the lack of real convergence a serious danger?
What is the rationale of the Taylor rule?
Why can't the Eurosystem take responsibility for national inflation rates?
What happens to a country's interest rate when it joins the Eurozone?
What is the difference between Denmark and Sweden regarding monetary union membership? Which one, if any, is likely to adopt the euro first?
What are the five convergence criteria and what is the logic behind each of them?
Why do central banks have to anticipate future economic developments?
Why are central banks ultimately responsible for inflation? How can they achieve this objective?
A Eurozone member has a fixed exchange rate. Use the IS-ML-IRP framework to see what happens when: - demand for domestic goods declines; - interest rates abroad rise; - the government carries out an expansionary fiscal policy.
Same question as above when the central bank cares little about price stability.
Consider a central bank that cares only about price stability. Use the IS-ML-IRP framework under a flexible exchange rate regime to see what happens when inflation is rising.
Imagine that you are the governor of the central bank of Poland (or Hungary or the Czech Republic). Would you be for or against your country adopting the euro?
Write a fictional story in which the EMU is dissolved. Carefully explain each step in the process.
Would the EMU benefit from more members?
In summary, will joining the EMU promote higher growth, stability and a lasting increase in jobs?
What impact would entry into the EMU have on the competitive position of the UK's financial services industry, particularly the City's wholesale markets?
Would joining the EMU create better conditions for firms making long-term decisions to invest in the UK?
If problems emerge, is there sufficient flexibility to deal with them?
Are business cycles and economic structures compatible so that we and others could live comfortably with euro interest rates on a permanent basis?
'Admission of more countries into the Eurozone is likely to increase the risk of asymmetric shocks.' Comment.
You are given the task of designing a transfer system to cope with asymmetric shocks within the Eurozone. Consider both how to collect and how to spend these resources.
Can you imagine other regions in the world that could also adopt a common currency?
Why are transfers among countries acting as an insurance?
The new Member States are likely to be affected by the Balassa-Samuelson effect presented in Chapter 13. What does this imply for their inflation rates once they join the Eurozone?
Trade increases among two countries can take two forms: each country becomes more specialized and therefore exports and imports different goods (e.g. France sells wine and Germany sells beer), or both countries compete more directly on similar goods (e.g. France and Germany sell cars to each
In Figure 15.4 an adverse asymmetric shock is met by a depreciation. What does the size of the depreciation depend upon?
The labour mobility criterion implicitly assumes that the labour force is homogeneous, which is not the case as workers are most often specialized. How should this criterion be refined?
In Figure 15.7 the demand shock originates from outside the currency union. Draw the case when the shock takes the form of a shift in demand away from country A's goods and towards country B's goods.
Imagine that country A in Figure 15.7 is hit by a shock that negatively affects productivity so that the supply curve shifts to the left (for instance, a sharp drop in public or private investment or a devastating earthquake). What happens in each country?
What happens in Figure 15.7 if prices are perfectly flexible in country B but rigid in country A?
What happens in Figure 15.7 if prices are perfectly flexible in country A but rigid in country B?
Reconsider Figure 15.7 but now examine the case of a positive demand shock. Carefully interpret your results.
Imagine a break-up of the euro. What is likely to happen to the exchange rate regimes of the ex-member countries?
Some countries are attached to intra-Europe exchange rate stability, others are not. Comment.
"The creation of the European snake was a sign of US decline in monetary matters.' Comment.
Proposals to return the world to the Gold Standard are regularly put forward. Evaluate the pros and cons of this idea.
The inter-war decline of Britain is sometimes imputed to the 1924 return to the Gold Standard at the overvalued pre-war parity. Explain how and why lasting overvaluations hurt.
Some suggest a return to the Gold Exchange Standard. Discuss, using the tools developed in Chapter 13.
Would the Bretton Woods system have survived had it been constructed more tightly, for example like the ERM?
In retrospect it is claimed that the 1992-93 EMS crisis could have been anticipated. Why/why not? Once the crisis started, could Italy and the UK have stayed in the system, and if so under what conditions?
The Danish people have rejected by referendum joining the Eurozone. So Denmark has been a member of the ERM-2 since it was created in 1999, and the krone has almost never moved by more than 1 per cent vis--vis the euro. What difference would Eurozone membership make?
The non-Eurozone EU member countries currently allow their exchange rates to float (relatively) freely. Denmark is a member of the ERM. Is this in line with the impossible trinity principle?
What did countries gain and lose by transferring from the ERM to monetary union?
What do we mean when we say that the EMS-1 had become a 'Deutschmark area'? How did that happen and could it have been foreseen?
Why was it easy to foresee realignments with the ERM? How could speculators take advantage of that?

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The Economics Of European Integration 6th Edition Richard E. Baldwin, Charles Wyplosz - Solutions

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