Hot answers tagged

55

It appears the problem isn't the deficit (the loss from an individual budget) but the size of the existing debt itself. From a report in the Guardian Italy’s public debt is worth more than 130% of the country’s GDP, the second-highest level in the EU after Greece and more than double the bloc’s limit of 60%. In effect, the EU don't believe that the ...


44

Italy is not just planning a high budget deficit, it has a very high level of national debt. (As of 2017, it was 131.8% of their GDP, second only to Greece) This makes their deficit riskier than it would be for a country with a lower level of overall debt. Italian banks also own a lot of that debt, and there is a fear that government intervention in the ...


30

Investopedia has an article about why some countries prefer not to use the Euro. Countries with their own national currencies may have several advantages in managing economic problems: "They have their own independent central banks which are able to act as the lender of last resort for the country’s debt." "When inflation rises in an economy,...


18

The SNP's long term goal is independence for Scotland. During the last referendum on the subject, the issue of which currency Scotland would use was an important point of contention. The legal situation is somewhat unclear and, possibly as a tactic to convince voters to remain in the UK, the UK national government suggested that they would not want to share ...


15

Effects of adopting the Euro: Pro: Poland has significant trade links with Eurozone countries. Adopting the Euro removes an obstacle to trade, since traders no longer have to hedge against currency risks (or accept the risks). The same applies to Euro-denominated debts. Pro: In trades with countries outside the Eurozone, the size of the Eurozone economies ...


13

The main reason for a common currency was to remove the business risk which came from currency fluctuations. When a company in country A buys goods or services from a company in country B, they need to obtain some currency B to pay the bill. But what happens when the exchange rate between currency A and currency B suddenly changes and currency B is a lot ...


13

First some history. The US did not always have a monetary policy. It has not always had a strong currency. It defaulted in the Revolutionary War and in the War of 1812 and on the Bretton Woods gold standard agreement. Sayeth Wiki: With the enactment of the National Banking Act of 1863, during the American Civil War and its later versions that taxed states' ...


11

The Eurozone isn't a separate entity from the European Union, but an umbrella term for the countries that have reached the third stage of the Economic and Monetary Union. Technically all member states of the EU that have met the convergence criteria are required to adopt the Euro, with the notable exceptions of Denmark and the United Kingdom who managed to ...


10

The main reason is that the European Union (and before that the European Communities) was intended by its architects to bring about ever tighter integration, possibly all the way to a federal state. Seemingly technical measures like the customs union and common market were not only or mainly intended at boosting economic output but at fostering understanding ...


10

As mentioned in previous answers, it is not just about the deficit but also about the already high level of national debt. Furthermore, the Italian government was initially expected to aim for a 0.8% deficit in 2019 before announcing last July that they would not be able to hold that. So instead of reducing its deficit as expected, the Italian government ...


9

The criteria that the US Treasury applies to label a currency manipulator, according to US law Criterion (1) - Significant bilateral trade surplus with the United States. Treasury assesses that economies with a bilateral goods [...] surplus of at least $20 billion (roughly 0.1 percent of U.S. GDP) have a “significant” surplus. Criterion (2) – ...


9

Kicking Greece out would be the same as admitting the politicians had made a mistake. And as you know, they never admit that - at least not voluntary. "Kicking the can and hope the problem disappears over time" is the favorite way to handle problems in the EU. At first, allowing Greece to stay in was easier than to kick it out, so that was the approach. ...


9

In 2010, much of Greece government's debt was in the hand of private investors, especially French and German banks and there were serious concerns that a default could trigger a contagion that would destabilize the whole euro area. So even before any talk of leaving the euro, simply defaulting on the debt could have serious consequences. It might not have ...


9

When two parties in a trade agree on what is traded, apples for oranges, petroleum for USD, petroleum for EUR, petroleum for apples, and so on, there is no reason why the trade cannot proceed in principle. If the quote is accurate, it likely means that Juncker is not aware of the practical benefit of having value being exchanged in the form of USD. Since ...


8

To answer what I understand to be the spirit of the question, the two opt outs are to be found as protocol 15 of the Treaty on European Union (Maastricht treaty) for the Euro and the section "Protocol integrating the Schengen acquis into the framework of the European Union" of the Treaty of Amsterdam. Both treaties were negotiated via intergovernmental ...


8

There are a number of issues that come with adopting the Euro. At the time of this answer the exchange rate is 1 złoty = .22 Euro. The first most obvious issue is people tend not to grasp currency changes very well. Someone with 1,000 złoty in the bank will wake up one day and have about 220 euros which looks a lot like losing 75% of your money, despite it ...


7

The answer is a bit similar to the answer to Could the UK re-join EU after leaving? Legally, there is nothing in place to grant automatic EU membership or some sort of smooth path to it. Except if all EU members agree to reform the treaties (which has become increasingly difficult in the last decades), Scotland would have to use the regular path to admission....


7

The Greenland example indicates that EU law is quite amenable to fudging situations. It's also important to remember that the EU is a creation of treaties and can be amended by treaties. A unanimous agreement of the members can change anything. If, as is quite likely, there is an agreement that needs to be made about the UK's status after Brexit, it would be ...


7

It's worth specifically talking about Sweden While UK and Denmark have negotiated Opt-outs, Sweden fits as a country that has basically unilaterally decided not to join the Euro. The Euro convergence criteria in the Maastricht Treaty obliges members to adopt the Euro once they fulfil certain criteria. Sweden deliberately fails to meet these criteria, by ...


7

they would be obliged to join the Euro as soon as the necessary economic conditions were met? The second part of this sentence is doing a lot of work. The criteria are quite onerous and many of the current Eurozone members no longer meet them; they are also fairly easy to game if a country does not want to join the Euro. The reason so much effort is being ...


7

Only the ECB has the right to issue Euro banknotes (p. 103). States can issue coins up to a total value set by the ECB. At some point during the initial creation of the Euro, and during the accession of new members, the exchange rate is set. From that point, swapping the paper is merely an administrative task.


6

Political language is often imprecise, especially recently. The US has put a definiton of currency manipulators into law. While this is US law, and not international law, one might reasonably expect US officials to apply this definition in their statements. The definition has three criteria which must all be met to label a country a currency manipulator. ...


6

Can an EU member officially give up pursuing Euro/Eurozone? No (...ish). The current stance of the EU Commission is: All EU Member States, except Denmark and the United Kingdom, are required to adopt the euro and join the euro area. To do this they must meet certain conditions known as 'convergence criteria'. The exceptions for the UK and Denmark ...


6

It is a practical matter (mostly). The Eurozone uses the same exchange rate and currency but doesn't use a standardized interest rate among members. When the standard currency went into effect, each member signed an agreement to keep their debt levels and interest rates at a low level to ensure the integrity of the economic union. Germany and France broke ...


4

No one has ever been ousted from the EU. Several of the Maastricht criteria only apply to countries that have not yet joined the common currency. For example, inflation, exchange rate stability, and long term interest rates are the responsibility of the EU central bank after convergence. In 2014, fifteen of twenty-seven countries missed the criterion for ...


4

The way that Greece would benefit from leaving the Euro is that their currency could adjust to a low value relative to the Euro. This would make tourism and Greek exports cheap stimulating their economy. The same thing could happen if they stayed with the Euro, but it would require most of the country to take further pay cuts which would be tricky to ...


4

The monetary impact of a default in Greece should be very small in the Euro given that the percentage of GPB of Greece is very small compared to the rest of the Eurozone. However such default would mean that a large institution as the European Central Bank is unable to deal with a small problem like is a hypothetical default of the Greece government. This ...


Only top voted, non community-wiki answers of a minimum length are eligible