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The Economics Of European Integration 3rd Edition Richard E. Baldwin, Charles Wyplosz - Solutions
How would you reform the Stability and Growth Pact?
Why is there a contradiction between the Stability and Growth Pact and sovereignty in the matter of budgets?
Why are fines under the Stability and Growth Pact sometimes described as pro-cyclical fiscal policy?
If the SGP required the cyclically adjusted budget to be balanced every year, explain why fiscal policy would be strictly confined to the automatic stabilizers. What difference would it make if the cyclically adjusted budget had to be balanced on average over business cycles?
When can ECOFIN impose fines in the framework of the Stability and Growth Pact?
Why is fiscal policy useful at the country level in the monetary union and not at the overall EU level?
What is the intended purpose of the Stability and Growth Pact?
Explain the no-bailout clause.
What are externalities or spillovers? How do they operate in the case of fiscal policy?
In Fig. 18.1, identify years when fiscal policy is pro-cyclical, and years when it is countercyclical.
What is the difference between actual and cyclically adjusted budgets? Why are dis- cretionary actions visible only in changes of the cyclically adjusted budget balance?
Make the case for and against Eurozone membership of Estonia and Lithuania.
The convergence criteria are about nominal conditions (inflation, deficits and debts) but not about real conditions (GDP per capita, growth). This was understandable for the original founders but what does it mean for the upcoming wave of accession of the ten new EU members? Should the same
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?
Box 17.4 presents the solution proposed by the Eurosystem to face the enlargement of the Eurozone. Evaluate this proposal and make your own suggestions.
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 adverse shock. Could it leave? How? What could the other countries do to try to keep it in?
Find on www.ecb.int the latest press conference on monetary policy decisions and interpret the text in the light of the stated strategy.
The Eurosystem asserts that, in its deliberations, 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.
Why can the Eurosystem not take responsibility for national inflation rates?
What is the Eurosystem's definition of price stability? What would be your own definition?
The Eurosystem sets the money supply in the Eurozone, but what drives the money stock in each country? How does this relate to Hume's mechanism and the gold standard (Chapter 10)?
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?
Why can inflation rates differ across the EMU member countries? What are the consequences?
'With one money there can exist only one central bank, and therefore one monetary policy." What, then, is the role of national central banks in the EMU?
What are the five convergence criteria and what is the logic behind each of them?
'Mandatory capital mobility - as part of the Single Market-turns out to be a hindrance to ERM membership by the new Member States.' Comment.
'The EMS turned out to be a successful transition to the establishment of the monetary union.' Comment.
The EU new members have to operate for at least two years within EMS-2's ERM. What problems can you envision? What alternatives would you suggest?
Would the Bretton Woods system have survived had it been patterned after the ERM?
In retrospect it is claimed that the 1992-93 crisis of the EMS could have been anticipated. Why and why not? Once the crisis started, could Italy and the UK have stayed in the system, and if so under what conditions?
What do we mean by saying that the EMS-1 had become a 'Deutschmark area? How did that happen and could it have been foreseen?
In Fig. 16.5, compare inflation in the UK and Sweden on the one hand, and the Czech Republic, Hungary and Poland on the other. These countries have in common that they did not join the ERM and that their central banks pursue strategies quite similar to that of the Eurosystem. Why are the inflation
Imagine three ERM countries. Compute a fictional parity grid linking their three currencies pairwise.
Estonia and Lithuania simultaneously operate a currency board arrangement and are ERM members. Is there a contradiction?
Explain the principle of mutual support within the ERM.
What are the margins of fluctuation? What role do they play?
How does EMS-2 differ from EMS-1?
What is the difference between the EMS and the ERM?
Why do you think European nations trade more with their former colonies?
Do you think it would be a good idea for the EU to sign more trade agreements? If so, with which countries and why?
Write an account of the EU's recent troubles with Chinese textile exports. Be sure to explain how this illustrates the allocation of competences and the difficult politics within the EU on trade matters.
Write an essay describing the EU's trade policy in a particular sector, such as steel or textiles.
Select a particular European trade partner and investigate all the trade agreements the EU has with it and the EU's imports and exports to this nation. You can find trade data on http://europa.eu.int/comm/trade/, and information on trade agreements on the same site (but also check the more general
'Some non-governmental organizations (NGOs) claim that the EU only provides develop- ing nations with tariff preferences that are not worth much, either because the developing nations are not competitive in these goods or because the EU's CET is low on these goods so duty-free treatment is not much
'In some sense, the trade policy has been the EU's most effective form of "foreign policy", and indeed up until the Maastricht Treaty it could be considered the EU's only foreign policy. Write an essay evaluating this statement.
Explain the term 'hub-and-spoke bilateralism' as applied to the EU's neighbours in Europe and around the Mediterranean.
Why did the EU extend unilateral tariff preferences to former French and Belgium colonies, and why did it extend these to former British colonies in the mid-1970s?
What is the most protected good in the EU and which is the least protected good?
What does the EU buy from and sell to the five continents, Europe, Africa, North America, South America and Asia?
What is the role of the Member States and the Commission when it comes to external trade policy? Be sure to distinguish between trade in goods and more 'modern' trade issues such as trade in services, trade in intellectual property rights and foreign direct investment.
In 2008, the EU began a review of its merger regulations. Read about the various considera- tions posted on the Commission's website and write an essay on how you think the merger regulations should be changed.
Read about the EU's 'Lisbon Strategy' and use the reasoning and logic in this chapter to explain the role that EU leaders expected competition policy to play in making the EU the most competitive economy by 2010.
Some EU members allow their companies to engage in 'anti-takeover' practices. Discuss how differences in EU members' laws concerning these practices might be viewed as unfair when an EU industry is being transformed by a wave of mergers and acquisitions.
While the case for strengthening European-wide competition policy in tandem with the Single Market Programme is clear, is it obvious that this task should be allocated to the EU level instead of being left in the hands of Member States?
When the Single Market Programme was launched in the mid-1980s, European leaders asserted that it would improve the competitiveness of European firms vis--vis US firms. Explain how one can make sense of this assertion by extending the reasoning in this chapter, and explain why this makes EU
Using a diagram similar to Fig. 14.2, show what the welfare effects would be following a switch from normal competition to perfect collusion. Be sure to address the change in consumer surplus and pure profits.
Look up a recent antitrust case (Article 81) on the Commission's website (europa.int.eu) and explain the economic and legal reasoning behind the Commission's decision using the diagrams in this chapter.
Look up a recent abuse of dominant position case (Article 82) on the Commission's website (europa.int.eu) and explain the economic and legal reasoning behind the Commission's decision using the diagrams in this chapter.
Look up a recent state aid case on the Commission's website (europa.int.eu) and explain the economic and legal reasoning behind the Commission's decision using the diagrams in this chapter.
Suppose that liberalization occurs as in Fig. 14.1 and the result is a pro-competitive effect, but instead of merging or restructuring, all firms are bought by their national governments to allow the firms to continue operating. What will be the impact of this on prices and government revenues? Now
Using the theory of fiscal federalism presented in Chapter 2, can you argue that regional policy should be set at the EU level?
Many of the ten newcomer members are both very agrarian and very poor. Some of them have agricultural land that is well suited to the production of the products that the CAP supports most. How do you think these nations will vote when the new long-term budget plan is drawn up for the
When the ten newcomers joined, some Objective I regions become 'statistically' rich. That is, the lowering of the EU average will push their incomes above the 75 per cent threshold for Objective 1 status. Referring to the two theoretical frameworks discussed in the chapter, do you think it is
EU regional policy was reformed in the context of 'Agenda 2000'. What were the major reform themes and how successfully were they implemented?
The educational level in all EU nations is rising. How would this affect the spatial allocation of production in the Heckscher-Ohlin framework?
Download the European Commission's proposal for reforming structural spending and compare them to the principles of the system in place up to the end of 2006.
Draw a diagram with the extensions to the agglomeration diagram suggested in Box 13.2.
Using the theory of fiscal federalism presented in Chapter 2, can you argue that agricultural policy should be set at the EU level?
What is the overall impact of the EU's CAP on farmers in developing nations (Hint: The IMF published a study on this issue in its September 2002 World Economic Outlook.)
Select a particular European nation and investigate the political influence of its farmers. In particular, identify the main farm lobby group(s) and show how they put pressure on politicians to continue the high level of support.
What sort of CAP reforms are proposed by environmental groups in Europe? Choose one group's policy recommendations and discuss its implications for the overall level of support to the farm sector, its distribution among farmers and its implications for world food markets.
Compare the EU's agricultural policy to that of the USA. The EU's policy is based on price support plus direct payments. Does the USA have the same system? Which policy provides a higher level of support to farmers? (Hint: The US Department of Agriculture has an excellent website, and the OECD
What would be the impact of this on prices, output and the distribution of farm incomes?
The European Commission has proposed putting an upper limit on the total direct payment per farm of approximately 300
The text mentions that since direct payments are tied to the land, it is the land price that soaks up most of the subsidy. Use a classic supply and demand diagram to demonstrate this result. (Hint: This is a standard exercise in what is known as the 'incidence of a tax' since a subsidy is just a
Suppose that the EU allowed free trade in food and subsidized production on small farms only. Analyse the price, quantity and welfare implications of this policy using a diagram.
Before the UK adopted the CAP, it supported its farmers with a system of 'deficiency payments, which is the agro-jargon for production subsidies. Using a diagram like Fig. 12.2, analyse this policy assuming that the import of food was duty free, but the government directlypaid farmers the
Some developing nations accuse the EU of using technical standards for food (pesticide content, etc.) as a barrier to trade. Suppose they are correct. Use diagrams to show how you would analyse the impact of such protection on EU and RoW welfare. (Hint: See Chapter 4's analysis of 'frictional'
In 2003, the world wheat price is above the CAP's target price so the price floor has become a price ceiling. (i) Using a diagram like Fig. 12.2, show how the EU could implement the price ceiling with an export tax. (ii) What are the effects of this in the EU and in the rest of the world (prices,
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 science fiction story: a severe asymmetric shock occurs and leads to such economic hardship that the European monetary union is dissolved. Carefully explain each step in the process.
Would the European Monetary Union benefit from British or Swedish membership?
The UK Chancellor of the Exchequer has stated that the UK will join the EMU when five economic tests are passed. These five tests are: * Are business cycles and economic structures compatible so that we and others could live comfortably with euro interest rates on a permanent basis? *If problems
'Admission of the new Member States 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?
Could immigration be a solution to the labour immobility problem?
What does this imply for their inflation rates once they join the Eurozone?
The new Member States are likely to be affected by the Balassa-Samuelson effect presented in Chapter
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 sells cars to each
In Fig. 11.3 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?
Imagine that wages are exogenously increased in Country A. Use Fig. 11.5 to explore the impact on a monetary union.
What happens in Fig. 11.5 if prices are perfectly flexible in Country B but rigid in Country A?
What happens in Fig. 11.5 if prices are perfectly flexible in Country A but rigid in Country B?
Reconsider Fig. 11.5 when Country A is affected by a positive demand shock. Carefully interpret your results.
Some European countries are attached to intra-exchange rate stability, others not. Comment.
Britain and Sweden have decided not to adopt the euro. Discuss the economic implications.
Imagine that one current member decides to leave the Eurozone. What is the likely impact on its exchange rate? Make your assumption about the monetary policy after departure explicit.
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