Reading...
Play button
Play button
Use LEFT and RIGHT arrow keys to navigate between flashcards;
Use UP and DOWN arrow keys to flip the card;
H to show hint;
A reads text to speech;
62 Cards in this Set
- Front
- Back
|
process of integration-- two main parts:
|
Market integration (economic) and Policy Integration (Political)
|
|
|
Economic Logic of market Integration
|
“the free exchange of goods promises a positive effect on the prosperity of all concerned. It permits consumers to choose the cheapest good, generally widens the choice, and creates conditions for further gain through economies of scale”
o also allows for free flow of goods and capital. When freed, capital and jobs go to the places they’re needed · Policy Integration: government in western EU always involved in the economy so these governments need to work together to make collective market work. Needed for the betterment of multiple societies economically and for political harmony. |
|
|
Stages of Market Integration (3 parts)
|
1. Freetrade Area (FTA) removal of all import duties and quantitative restrictions among partners. Free internal flow of goods
2. Customs union (CU) all obstacles to internal trade removed. Common tariff put in place. 3. Common Market (CM) 1. Includes internal free flow of goods and services in the area. 2. Common external regulation of products and production factors (includes a CU) · further steps not yet taken o Political Union (PU): integration beyond economic policy o Full Union (FU): total economic and political union. Same taxes, laws, social security measures |
|
|
The Subsidiary Principal
|
argues that a issue should only come before the EU as a whole if the member states cannot sort out the issue on their own. This is carried out under the principals that: 1. Differences in needs will be better taken into account, lower cost of action, higher accountability 2. Innovation and experiment will be given more latitude
|
|
|
Regimes
|
special sets of understandings, rules, organisations, and compliance mechanisms that govern the relations between private and public actors in a given area of public interest.
· “all forms of integration diminish the freedom of action of the member states’ policy makers” |
|
|
Hierarchy of Policy Cooperation (3 parts)
|
INFORMATION (exchanging ideas, updates, consultation, working together to a limited extent on cooperation)
COORDINATION (commits partners to common agreements), UNIFICATION (abolition of national instruments or adoption of identical instruments) |
|
|
Principal of Proportionality
|
the idea that the less strict and specific instruments that are used in economic and policy integration between two countries, the greater the benefits to society as a whole will be. Less strict private policy, less loss to society.
|
|
|
CET (common external tarrif)
|
turns a FTA into a customs union CU
· “there is no optimum blue print for the intermediate stages between the FTA and the FU” |
|
|
Compliance: there are four different methods by which countries can pressure one another to reach common goals
|
o Coercion: (force) orders are given in a hierarchical setting. Impossible to really enforce given the lack of police or military.
o Reputation: members want to keep face with partners. This is most common in the EU o Sanctions: punishment for disobeying regime of the collective body. Can come in the form of expulsion. Never been used. o Incentives: reward for compliance, sometimes used. |
|
|
Long Term Advantages and Costs of integration
|
gains: long term increased effectiveness of allocation. Decreased cost of policy delivery (economies of scale), increased effectiveness of economies leading to credibility. Lower cost of doing business.
o Costs: short term loss of national autonomy, inability to take specific action |
|
|
Three Views of Political Motivations behind Economic Integration
|
Neofunctionalism Theory: integration driven by spill over of one policy area to another. (economic benefits spill over into political decision making.
· Liberal Intergovernmentalism: national governments can alleviate internal problems by taking part in an institution · Multi-level governance: An early explanation referred to multi-level governance as a system of continuous negotiation among nested governments at several territorial tiers ….. described how supranational, national, regional, and local governments are enmeshed in territorially overarching policy networks. |
|
|
Domino Theory
|
the more countries that choose to participate in an institution, the greater potential benefits or costs of joining or not joining respectively
· Important to note that none of the theories or approaches compete, but instead compliment one another |
|
|
The 4 Freedoms
|
1. Free Movement of Capital
2. Free Movement of Goods 3. Free Movement of Persons 4. Freedom to Provide Services |
|
|
Free Movement of Capital ( real estate, securities investments, loans and credits, other operation with financial institutions)
|
The ECB is the supervisory authority
it enables integrated open competitive and efficient european financial markets which bring many advantages to us all. for citizens it means the ability to do many operations abroad, such as opening businesses bank accounts and ext. for companies it basically means being able to invest in and own other european companies and take an active part in their management |
|
|
Free Movement of Goods
|
most fundamental of the four
refers to the removal of customs duties on all imports and exports between member countries or any other payment which is deemed to have an equivalent effect the two points above means removal of all tariff and nontariff barrier Three forms of non tariff barriers technical barriers (arbitrary specifications on products, as in the Cassis de Dijon Case) physical barriers (ex. filling out paperwork for customs purposes) fiscal barriers (different tax schemes in different countries) Two loopholes for free exchange of goods countries still have the right to restrict an import on grounds of public morality, public policy, public security, or for the protection of the health and life of humans, animals or plants (anyone who eats plants is a bad person. They have constitutional rights- Eli) countries still reserve the right to impose the same tax on imported good as they would on domestic goods these loopholes lead to the Cassis de Dijon Case Case Study: |
|
|
Free Movement of Persons
|
you can move and live in different countries around the EU.
any citizen can move from one country to another in the EU as long as he or she is covered by insurance and is in receipt of welfare benefits or any sort of income ( if not he will be limited by three month stay). this freedom also refers to tourists like us. Today if I go for a vacation in France, I would have the ability to go to spain with no any restricitions or certificates needed ( not like in Israel for example, don't try to go to lebannon from israel, you will probably get raped by same old fashioned sheeps before they will interrogate you and poop on ya face- Dandan) Although free movement is an economic, not a social concept, it creates many problems of a social nature: transfer of pensions and social benefits, entitlements of migrant workers to unemployment, social security and other benefits, family issues of education, housing, and so on. These social issues came to be dealt with not as independent social concern |
|
|
Freedom to Provide Services
|
refers the freedom to perform services in one country, while the business officially operates in another country
good examples of such services are transportation, banking, and industry of course, a government can restrict the provision of such services if it contradicts public policy in that country this freedom wasn't effectively in place until the late 1980s this issue is especially important because services comprise 60% of all jobs and 65% of GDP in the EU |
|
|
European Commission
|
It’s the executive body of the European Union responsible for proposing legislation, implementing decisions, upholding the Union’s treaties and day to day running of the EU (28 members)
o Treated as the Government o Implements EU policy and administers the budget. o Negotiates international treaties. |
|
|
European Parliament- represent the citizens 736 members
|
Acts together with the council and the commission as a legislature
o Share with the council the budgetary power (same power) and decided in the last instance on the general budget of the EU o It does not have the power to bring new ideas for legislative power. o Indirect influence- as non binding resolutions. |
|
|
Council of the European Union- RAT- represent governments
|
Acts together with the Parliament as a legislature.
o Same budget power as parliament. o Conclude international agreements. |
|
|
European Council
|
o Summit of the heads of government as a presence of the high representative of the union of Foreign affairs.
o Gives and helps to develop and sets out the general objectives. o WILL NOT legislate (“We must protect this HOUSE” - Underarmour) |
|
|
European central bank:
|
Firms together with the national central banks and determining the monetary policy of the EU
o Ensures price stability in the Eurozone by controlling QE, and Money Supply |
|
|
Court of Justice of European Union:
|
- Ensure uniformity of interpretation of European Law
- Has the power to decide legal disputes |
|
|
the EU budget and the implications of its expenditures and revenues
|
The EU Budget Makes of 1% of the Areas GDP
The EU has cannot borrow money, so expenditures are always equal to revenue (balanced budget^) The EU Budget is relatively small. around ½ of the size of germany’s |
|
|
Three Sources of EU Revenue
|
1. imports duties on goods from outside the EU (14% of the budget)
2. a percentage of Value Added Tax (VAT) from each country (16% of the budget) because the VAT varies between different member countries, the percentage taken for the EU also varies. 3. a percentage (around 1%) of Gross National Income (GNI) (65% of the budget) |
|
|
Expenditure of EU
|
most of the EU budget goes to agricultural and regional support. european poor areas are getting most of the support. 46 % goes to sustainable Growth, 6 % goes to EU as a global player. 1.5% goes citizenship, freedom, security and justice. 40% goes to natural resources overall. 6 % to administration.
|
|
|
Trade policy
|
essentially means imposing quota (benefits domestic producers) restrictions or tariffs (benefits domestic government) on foreign goods. The effects of both these are the same in terms of impact to consumer welfare reduction and an increase in producer welfare, the difference is who receives the central sum of money(either tax revenue or higher profits for producers)
|
|
|
Welfare Economics:
|
think about it like the common agricultural policy. We know that a subsidy is ‘worse’ for the consumers (same effect as a tarriff/ quota,) but with welfare economics you try to quantify preferences, such as the gain from employment of small farmers in europe offsetting the worse situation from the consumers.
|
|
|
Protectionism
|
“international trade increases world efficiency by specialization in production and exchange according to comparative advantage”
|
|
|
reasons for free trade intervention policies
|
preserve or encourage mature industries (steel, shipbuilding)
already have infrastructure, if not protected wasted facilities o promote strategic growth (technology) o support especially disadvantaged sectors o protects sectors for national defense agg industry, if war broke out we would want food available domestically o protect jobs in place detroit auto industry o offset unfair trade by other countries china super competitive from low-wage labor; protect our industry so when their labor market gets more expensive (ex. b/c of human rights, demanded higher wage) we are still in the industry ready to compete o to operate profit maximizing strategic trade policies · in general, consumers lose when barriers are set up while companies gain. This happens because companies have the money to exert political pressure, this is called “rent seeking”. Society wins on the whole with free trade intervention though. |
|
|
"Rent Seeking"
|
a way of obtaining personal wealth without creating new wealth. Ex. A oil company lobbying in congress: money is spent by oil company, but no new product is made. Rather, the oil company successfully got congress to pass a measure protecting their low environmental standards. This is profitable for the oil company, without generating new wealth. Another classic example is New York City taxis: there are a limited amount of medallions, so only so many taxis can operate there. This is not at the benefit of people in the city, but rather of the medallion owners who benefit from the monopoly
|
|
|
Tarrif:
|
government tax on imports or exports
|
|
|
Nontarrif barriers
|
quantitative restrictions, subsidies, government procurement practices, or technical barriers to trade
|
|
|
Main reasons for strategic trade policy with protection
|
A) boost sectors in which the country has a comparative advantage
B) promote sectors yielding external economies (?) |
|
|
GATT
|
General Agreement on Tarrif and Trade. Replace by WTO in 95
|
|
|
VER
|
voluntary export restraints: restrictions on quantity of exports sent by an individual government or industry in that country. Increased scarcity abroad and usually raised sale price. Could boost over all value of good abroad. Used after WTO banned tariffs. Used in the 70s and 80s as non tariff barriers. Can also be done to pressure foreign production onto domestic soil.
· Used between the US and Japan. Big advantage because they’re opaque. Not as politically damaging. Japan allowed to charge a higher price for luxury cars not offered in the US. Big differences in the graph of the tariff. C becomes a rent transfer where the exporting country benefits instead of the importing government. Done to pressure the US to come into Ultimately, the consumer will be worse off through a VER |
|
|
advantages of VER (voluntary export restraints)
|
1. Voluntary so not directly angering another country 2. Less damaging to a countries reputation than a tariff
|
|
|
disadvantages of VER (voluntary export restraints)
|
favors individual producers. Could increase the market share at inefficient producers outside of the agreement
· If we look at the effect of a VER on a graph, it looks the same as that of an imposed tariff. Triangles B and D are the losses in welfare. C, which would normally be taken by the government as a tax, now goes to the foreign producer because of the hike in price. Domestic producers are allowed to charge more, just as in the tariff example, but this comes at the general cost to society and an artificial fall in demand |
|
|
Issues of common agricultural policy
|
raises prices within the EU because there is a variable import levy on foreign products. This was done to ensure that the prices of goods sold on European market were high enough for the farmers to make a living off of(stemming from cultural norms and a desire to bolster that part of the economy). Variable import levy is simply a levy that will adjust to fill the difference between the foreign product and the predetermined price of European goods.
· Welfare economics is on principle enacting price control to ensure that the highest level of social welfare is achieved. At the same time this could mean ensuring the highest level of welfare to go to the producers within a given country. · Euro CAP ensures that regional industry receives prices per unit which allows them to make a profit and live a good life. This means using the VIL to achieve high prices. Using a levy angers other national economies (eg. US) because its is unfairly advantaging domestic industry over internation |
|
|
problems with common agricultural policy
|
PRICES: CAP price intervention has been criticised for creating artificially high food prices throughout the EU.[citation needed]. High import tariffs (estimated at 18–28%) have the effect of keeping prices high by restricting competition by non-EU producers.
PUBLIC HEALTH (imagine if we subsidized tobacco… not promoting health): professionals have also levelled criticism at the CAP and its support regimes, arguing that agricultural policy often disregards health. It is evident that supply outputs are generating widespread public health issues of obesity and diet-related Non-Communicable Diseases (NCD's), such as, Cardio-Vascular Disease (CVD), cancer and type II diabetes. Diet is one of the major modifiable determinants in promoting or preventing chronic disease, and agricultural products have a major influence on the disease risk factors. Small Farms: more benefits are given to larger production, so the group that is supposed to benefit from the subsidy is not getting the benefit |
|
|
Monetary Policy
|
-the adjustment of a given currency
-generally operated by a central bank (e.g. US-The Fed, EU-European Central Bank -used as an immediate tool to stop the vicious circle. in the short term is very easy to predict the outcomes (e.g. money supply, inflation and interest rates). in the long term is very hard to predict outcomes of this tool b/c many of the long term trajectories are linked to expectations/consumer optimism/pessimism |
|
|
Monetary Policy as countercyclical tool
|
-used to counteract a vicious cycle:
If the Central Bank increases the money supply, (consumers can borrow and thus buy more)-->producers will immediately be able to produce more, pushing the entire process in the direction of the virtuous cycle |
|
|
vicious cycle
|
if producers are experiencing a down turn, they will produce less, if they are producing less, they will be forced to lay off workers, creating unemployment. More Unemployment means less consumption. Less consumption means less production. so repeats the cycle.
|
|
|
two main objectives of monetary policy
|
1. Stabilizing output (promoting growth without causing excessive levels of inflation )
2. keeping the economy near full employment |
|
|
government/monetary policy separation. reason?
|
to prevent political interests from interfering with changes in the money supply
for example, if the government is in a fuckload of debt, they would be tempted to dump money into the economy to decrease the value of their debt. this is problematic in the long run though, so the government and central bank should be kept separate ◦ another example: we know GDP increases when government spending increases (GDP=C+I+G+NX). Historically, politicians have incentive to increase spending by creating more money to spend (expansionary monetary policy.) This increases the GDP of the nation, which is attractive for a politician looking for reelection, or knowing that he won’t be in office anymore by the time the inflation catches up to the policy. Politicians are short term, so they are not wary of long term consequences of monetary policy. |
|
|
GDP equation
|
(GDP=C+I+G+NX)
|
|
|
inside lag
|
how long it takes to react to a shock in the economy (how long to recognize there is a recession, and make a policy)
▪ to construct the policy (negotiating policy, passing through congress, approving budget) |
|
|
outside lag
|
how long after implementation until the policy affects the economy
|
|
|
tools of monetary policy
|
-open market operations
-quantitative easing |
|
|
open market operations
|
means either buying or selling government bonds to increase or decrease overall money supply, thus increasing or decreasing the interest rate. Fed does this by setting the discount rate(rate at which US banks borrow from fed).
|
|
|
quantitative easing
|
increasing the money supply-through printing money thus lowering the interest rate at which the Central Bank lends banks Money. After the Fed prints money, the Fed buys different assets like long-term treasuries or bonds. This action pumps money into the U.S economy and reduces long-term interest rates further. When long-term interest rates go down, investors have more incentive to borrow, and therefore, demand(liquidity)increases as well.
|
|
|
interest rates
|
the interest rate is the cost of obtaining capital. when there is more money in circulation, each dollar is less rare/ valuable. Thus, if demand stayed the same and the money supply increased, it would be less expensive to obtain credit. If the money supply contracted, every firm looking for capital would be ‘fighting for’ the same limited amount of money. this would drive the interest rate up, because to receive this limited supply of credit you have to be willing to pay a higher rate.
|
|
|
Specifics of Monetary Policy in the EU
|
-Managed by the European Central Bank (ECB)
-based in Frankfurt am Main -Although satellite branches exist in all countries that use the EU and each of these branches are able to mint currency, non have direct control over changes in the money supply, this is centrally done through the ECB - |
|
|
Cost of Integrated Monetary Policy in EU
|
countries who use the Euro lose their autonomy in monetary policy, what is done for one country is done for all. This can be problematic if different countries have differing needs (read: what monetary policy would benefit both Germany and Greece? if each had control they would likely pursue different policies)
|
|
|
Benefits of Integrated Monetary Policy in EU
|
sharing a currency drastically improves the ease of international trade. As we know, the less barriers which exist to international trade, the greater the benefits to society as a whole. Also sharing a currency increases the creditworthiness of everyone as a whole, meaning countries that may be perceived to be individually not that creditworthy, are overall perceived to be more credible because they share a currency with wealthier nations.
|
|
|
TTIP
|
Transatlantic Trade and Investment Partnership
-in 2013 a PROPOSED (read: policy not yet in place) policy that would further reduce barriers to trade between the US and the EU -would be the largest free trade area in history (46% world GDP) benefits: same as prior situations with removing regulation |
|
|
CETA (EU and Canada)
|
-Canada and the EU signed a trade policy in October, to establish more open trade between the two areas
Opens the Canadian market up to 500 new consumers · Canada’s milk imports, a good example of European comparative advantage on a good, are expected to double, from 13 000 tons to 30 000 tons · In return, Canada lifted 98% of tarrifs on European goods · Total trade between the two areas currently totals 86 million and is expected to increase by 26 million as a result Value issue: the EU demanded the Canada increase their protection for patients against their pharmaceutical industry · Canada also rejected the right of the EU to have a saying in the fracking issue, regardless of their beliefs on environmental protection |
|
|
3 functions of money
|
store of value (Wertspeicher)
unit of account (Rechenanhalt) medium of exchange (Tauschmittel) |
|
|
Store of Value (function 1 of money)
|
A currency can be saved, does not perish, which allows the consumer to smooth his spending over time.
ex. of bad store of value: strawberries will perish, wheat could be grown by anybody and is seasonal- thus hard to compare to other goods |
|
|
Unit of Account (function 2 of money)
|
A good currency can provide a number value for which to exchange. This unit of account is made better by having the ability to be a very small or large number. The currency puts all goods in relation to one another.
hypothetical: you could ‘quote’ the price of every good in terms of any other good. see below example ex. of a bad unit of account: If cans of soup were our ‘money,’ you could buy a car for 2,000 cans. But if you wanted to just buy a single stamp, that might be ⅓ a can of soup. How do you divide? Who want’s ⅓ can of soup? |
|
|
Medium of Exchange (function 3 of money)
|
The currency is the thing actually used in the exchange. I can sell my cans of soup for dollars. I can use those dollars to buy either a stamp or a car. The dollars are used in the exchange, rather than good-for-good exchange (barter economy)
|
|
|
Fiat Money
|
money delinked from any claim to gold or silver.
-only exists if credible. people have to believe that this objectively worthless piece of paper has the power to exchange with goods and service -allows a central bank to control the supply of money (whereas gold and silver quantities are fixed) -when you don’t believe the value of the money will stay relatively constant, you may be exposed to hyperinflation -For the above reason, central bank is separated from government |
