The US dollar and the euro – Deus Ex Machina: The dollar may be our currency, but it’s your problem. EUMA Papers, Vol.5, No.9 April 2008

[Introduction]. Until the 19th and mid-20th centuries, economic theory explained that the economic status of a country was represented by the strength of its currency.2 This strength is measured by the exchange rate of one currency vis-á-vis another currency, a “zero-sum” game in which one currency gains what the other loses. In fact, during the 19th century, the strength of the Pound Sterling facilitated Britain’s global hegemonic political and economic power known as the Pax Britanica. During the 20th century, the strength of the US dollar represented both the economic and political hegemony of the US around the world known as the Pax Americana. Nowadays, the weakness of the US dollar is making specialists wonder if we are witnessing the end of Pax Americana and the beginning of something else, possibly a Pax Europea, led by the strength of the euro. This is the argument surrounding the current behaviour of the US$-€ exchange rate and its effect on the economic performance of these two economic blocs. While the current exchange rate between the US dollar and the euro has been considered a blessing for the US, it has become a matter of concern for most Eurozone countries. In fact, we are witnessing an unprecedented scenario where the country with a weak currency is actually pleased and the group of countries with a strong currency is worried. The strength of the euro is becoming irritating for the Eurozone and, nevertheless, the weakness of the US dollar is also pushing it to the brink of losing its status as a global currency. This exchange rate debate is accompanied by another debate concerning how the latest monetary policy actions taken by the US and Eurozone monetary authorities3, aimed at solving current economic imbalances, are affecting the US$-€ exchange rate. Scholars, economists, and politicians argue that these monetary policies seem unable to solve today’s economic problems in the EU as well as in the Eurozone, but are having a tremendous impact on the US$-€ exchange rate. This paper will explain in layman’s terms the relationship (or lack thereof) between two of today’s most important economic issues: the US dollar and euro exchange rate, and the monetary policy behind it

Could Europe Take the Slack Caused by a Slowdown in US Growth?

According to the International Monetary Fund ¨World Economic Outlook¨ published September 6th, in 2006 the World will enjoy a fifth year of consecutive growth with an economy on track to grow at 5.1%. In the European Union, Joaquin Almunia – European Union monetary affairs commissioner - has raised the EU growth forecast from 2.1% to 2.5% for year 2006. In the ¨Macroeconomic and Financial Situation in the European Union ¨ report, presented in Madrid last Septermber, Almunia gave the most upbeat assessment of the Eurozone economy for years, claiming that the economic recovery was robust and that structural reform in the labor, financial and product markets were paying off. He explicitly reported that ¨Economic growth this year is set to be the best we have had since 2000¨ and even expressed confidence in a further economic growth update for 2007 since he believes that the economic reforms will continue. The latest unemployment rate for the Eurozone— 8% in July— together with an accelerating growth driven by a boost in domestic demand and investment are nothing but good news for Almunia for whom the inflation rate is under control at 2.3%. However, according with the mentioned IMF report, this economic boom is predicted to finish in 2007 and – while the IMF agrees with Almunia´s in an unprecedented economic growth for 2006— it forecasts a ¨soft landing¨ for the world economy for 2007, leaded by a slowdown in the US economy, ¨risk to the global outlook is clearly tilted to the downside, there is one-in-six chance of growth falling below 3.25 per cent in 2007¨ a significant decline compared with the 5.1% growth confirmed for 2006. While for Almunia structural changes, employment and domestic growth are the reason for a continuous economic boom, for the IMF the burst will come by a slowdown in the US housing market and the actual surge in inflationary expectations that are forcing central banks to raise interest rates.

Man is the only animal that trips twice over the same stone

Since mid-2009 the world has been experiencing a feeble economic recovery that has been halted by an increase in oil prices which have negatively affected the recovery. History has taught us that the world has developed thanks to major industrial revolutions which have foster economic growth. The first industrial revolution took place in the 19th century when engineers started using refined coal which helped the first step of industrialization. The second major economic revolution came in the 20th century when the world moved forward due to the development of the petroleum industry with fuel oil and gasoline as a source of energy. The world’s industrial performance and economic growth in the 21st century is still stuck on fuel oil and gasoline a limited resource which has become a source of political and economic instability.Oil crisis; economics, political turmoil

Is the Euro, as a Common Currency,a Tool for Integration?

The European Union (EU) has become an icon of successful regional integration. Despite this success, the on-going integration process has two different speeds; while economic integration has been fast, steady, and assertive, political integration has been slow and demoralizing at times. This is justified by the complicated idiosyncrasy of the EU structure. However, this complacency with integration difficulties is becoming dangerous as the EU is at a critical moment with respect to both economic and political integration. In fact, many voices are claiming that the EU integration process has come to an abrupt end due to the latest difficulties in encouraging important structural reforms, implementing sound economic requirements, and struggling to agree on the Reform Treaty. However, this criticism is opportunistic because it does not take into account all that has been achieved in such a short period of time given the number of different countries involved, especially after the introduction of the EMU and the adoption of the euro as a common currency.Political integration, economic integration, euro, EU

In One Ear, Out The Other

The Union Members had some many problems to solve when drafting the Treaty of Rome (1958) that very little attention was paid to social policies provisions on the rights of workers, even less space was devoted to the migration of labour in the common market and the idea of full employment was considered a chimera. Simply, unemployment, as such, was not a Community concern at the time; although, by 1990 unemployment became the EU´s most intractable economic problem .Employment policies, ¨Employment, Social Affairs and Equal Opportunities,Luxembourg Jobs Summit, European Employment Strategy (EES)

The Reform Treaty: Its Impact on the Common Foreign and Security Policy (CFSP)

The Common Foreign and Security Policy (CFSP) was created in 1993 by the Maastricht Treaty1 as the second of the three pillars that shapes the European Union. The main coordinator of the CFSP is the High Representative for the Common Foreign and Security Policy (High Representative CF/SP). Under the ¨European Constitution¨ the pillar structure was going to disappear, which meant that the role of the CFSP would be further incorporated into the functions of the rest of the Union. Moreover, the office of the High Representative was going to be merged with the post of the Commissioner for Foreign Affairs to create a “Union Minister for Foreign Affairs.” However, the project of the ¨European Constitution¨ is programmed to be transformed into a ¨Reform Treaty¨. This paper will examine how the “Reform Treaty” will modify the functions of the CFSP, the position of High Representative CF/SP, and its role on the international stage.Reform treaty, CFSP, European Constitution, High Representative of the Union

The European Union Budget

The first EU budget was drafted in 1988 under the so-called “Delors Package I.” Its budgetary headings and monetary distribution have remained unchanged until 14th July 2004, when the Commission adjusted its traditional model to a new system of headings to adapt the budget to an evolutionary economical environment. The budget of the European Union distinguishes itself from other international bodies by its exclusive system of the so-called “own resources.” This system is composed of the revenues obtained by (1) the Common Customs duties collected under the external tariff; (2) the levies in imported agricultural products; (3) the Value Added Tax revenue; and (4) the Gross National Income based resources. The EU budget sets out and authorizes the total amount of revenues and expenditures annually deemed necessary by the European Community and the European Atomic Energy Community. However, the EU budget is a seven-year multi-annual spending plan articulated around a ¨financial framework¨ that ensures the control of the evolution of the budget expenditure. The budget is drafted and implemented under the ¨Financial Programming and Budget¨ Directorate General and is supervised by the European Parliament and the Court of Auditors. The EU budget not only rests on the three basic accounting principles: unity, annuality and balance, which guarantee its economic efficiency, but also on the composition of its revenues, the so-called “own resources.”EU budget

The US Dollar and the Euro: Deus Ex-Machina

Until the 19th and mid-20th centuries, economic theory explained that the economic status of a country was represented by the strength of its currency. This strength is measured by the exchange rate of one currency vis-á-vis another currency, a “zero-sum” game in which one currency gains what the other loses. In fact, during the 19th century, the strength of the Pound Sterling facilitated Britain’s global hegemonic political and economic power known as the Pax Britanica. During the 20th century, the strength of the US dollar represented both the economic and political hegemony of the US around the world known as the Pax Americana. Nowadays, the weakness of the US dollar is making specialists wonder if we are witnessing the end of Pax Americana and the beginning of something else, possibly a Pax Europea, led by the strength of the euro. This is the argument surrounding the current behaviour of the US$-€ exchange rate and its effect on the economic performance of these two economic blocs. While the current exchange rate between the US dollar and the euro has been considered a blessing for the US, it has become a matter of concern for most Eurozone countries. In fact, we are witnessing an unprecedented scenario where the country with a weak currency is actually pleased and the group of countries with a strong currency is worried. The strength of the euro is becoming irritating for the Eurozone and, nevertheless, the weakness of the US dollar is also pushing it to the brink of losing its status as a global currency. This exchange rate debate is accompanied by another debate concerning how the latest monetary policy actions taken by the US and Eurozone monetary authorities , aimed at solving current economic imbalances, are affecting the US$-€ exchange rate. Scholars, economists, and politicians argue that these monetary policies seem unable to solve today’s economic problems in the EU as well as in the Eurozone, but are having a tremendous impact on the US$-€ exchange rate. This paper will explain in layman’s terms the relationship (or lack thereof) between two of today’s most important economic issues: the US dollar and euro exchange rate, and the monetary policy behind it.Monetary policy, Euro, US Dollar,

The EU-China Trading-Economic Relationship Is Not a Zero-Sum Game

The European Union (EU) presented on Tuesday, October 24th, 2006, “EU-China: Closer partners, growing responsibilities” which establishes the bases for a new, extended partnership and cooperation agreement with Beijing. This new agreement is necessary since the current 1985 “Trade and Co-operation Agreement” does not reflect the recent surge in trade between the two regions. Even though China has passed the first law targeting money-laundering, the EU keeps criticizing that China’s current market barriers, intellectual property violations, and continuous state intervention to maintain an undervalued currency are undermining the beginning of a prosperous new era of EU-China economic relations -- especially, if the currency devaluation were to continue, even after being member of the World Trade Organization (WTO). In fact, the International Monetary Fund (IMF) has said that despite China having allowed more movement in the currency since September, a faster appreciation of China’s currency, the renminbi, is required since the surge in China's net exports and increase in its foreign exchange reserves demonstrates that the currency remains extremely undervalued. Furthermore, China is also being heavily criticized for opening the market to foreign banks too slowly, stating that a “free for all” would “damage the system.” This situation will be a truly devastating zero-sum game for Europe because the EU will be loosing jobs and reducing the living standard, while subsidizing China's poverty with European money. For this reason, EU has stated that “there is a growing risk that the EU-China trading relationship will not be seen as genuinely reciprocal. Political pressure in the EU to resist further openness to Chinese competition is likely to increase if these problems are not addressed.”

Is the Euro, as a Common Currency, a Tool for Integration?

The European Union (EU) has become an icon of successful regional integration. Despite this success, the on-going integration process has two different speeds; while economic integration has been fast, steady, and assertive, political integration has been slow and demoralizing at times. This is justified by the complicated idiosyncrasy of the EU structure. However, this complacency with integration difficulties is becoming dangerous as the EU is at a critical moment with respect to both economic and political integration. In fact, many voices are claiming that the EU integration process has come to an abrupt end due to the latest difficulties in encouraging important structural reforms, implementing sound economic requirements, and struggling to agree on the Reform Treaty. Gros and Micossi have stated that: “the EU’s inability to meet the challenges of integration is due to rigid economic structures and inadequate human capital—weaknesses that according to conventional wisdom can only be tackled by national policies, with little role for the Union and common policies. On the contrary, substantial policy spillovers across the EU justify strengthened policy coordination for labor-market, immigration and welfare reform”. However, this criticism is opportunistic because it does not take into account all that has been achieved in such a short period of time given the number of different countries involved, especially after the introduction of the EMU and the adoption of the euro as a common currency. Currently, there is an academic debate on whether economic integration precedes political integration or vice versa: this debate mainly focuses on explaining whether regional integration is caused by political or economic factors. Some assert that political decisions have been motivated by economic reasoning , and explain that historical evidence proves that “descriptions of fluctuations of international economic integration identify clear economic dynamics behind political decisions.” Others believe that political decisions are the propellers of regional integration and, as Balassa states, “political motives may prompt the first step in economic integration.” Regardless of this debate, this paper will explain how the introduction of the euro has facilitated the EU’s regional integration process, which encompasses both economic and political integration, and has allowed Europe to blossom ¨into a continent that is widely admired as prosperous, diverse and caring.¨