TO: Professors: Scott Abbott, Mark Jeffreys, William Cobb and Vaughn Armstrong
FROM: Jared Johnson
DATE: April 23, 2011
SUBJECT: Proposal to complete a research project on the effects of the Euro on the European Union and to demonstrate weaknesses within the Union itself that raise warning signs for the health of the EU moving forward.
Statement of Thesis and Project Summary:
The aim of this research project is to diagram and expose major economic and political flaws within the structure of the European Union and the creation of the Euro. The propose is to argue the negative impact and eventual demise of the Euro. I intend to do this by exploring and discussing how the Euro is a symbol of political and economic unity and whether it is enough to maintain that same unity within the European Union. My point of view on the Euro is opposed by many economist, financial analysts and politicians, especially while the Euro is currently nearly 50% stronger than the US Dollar with international money and attention ever growing in that region. So a key part of my argument will come from the Growth and Stability Pact at the creation of the Euro outlining “worst case scenario” debt situations that could lead to financial meltdown within the European Union, those scenarios arrived approximately two years ago. I will discuss both sides of the argument acknowledging the a positive Euro future (the majority) and the demise of the Euro (small minority) and I will attempt to argue the latter and demonstrate my point through hard economic facts, case studies, current events and similar international situations. With my background in international markets and currencies I have firsthand experience in this field and the Euro is a standing example of these kinds of major economical and political mishaps.
Key points of my argument will consist of the following:
- The hundreds of billions of dollars that have been spent on recent bailouts while the financial crisis is only growing more serious
- The political and social discontent between the “producing” countries and those in need of assistance.
- The continuing violations, by several member states of the EU, of severe debt warnings put in place at the creation of the Euro with the Stability and Growth Pact.
- Discuss the topic of the Euro replacing the US Dollar as the world reserve currency, pros and cons of that argument.
- The history of European countries fighting each other and taking advantage of those countries less able to defend themselves.
- The history of treaties and pacts put in place by the larger member states with any implications this has had regarding the smaller EU members.
- Lastly I will include the compare and contrast of the EU with other countries that have attempted currency unions and those countries that are in preliminary stages of considering such an organization (several oil producing countries are in talk currently).
Literature in Review:
Several of the sources used come directly from the International Monetary Fund (IMF) site as well as the European Commission for Economic and Financial Affairs (ECFIN), these are great primary sources for information regarding the affairs of the EU. According to the ECFIN, "implementation of the single currency was not only an economic decision; it was also a political commitment by the EU Member States to work together."
Indeed a major topic to be addressed in my project will be the financial danger looming around the PIIGS (Portugal, Ireland, Italy, Greece and Spain) and a great article found in my research reinforces this point, “Greece’s fiscal problems are, as I have argued many times, but the tip of a global iceberg... Indeed, history suggests that severe recession and socialization of private losses often lead to an unsustainable build-up of public debt.”
Another article that was crucial comes from a professor of economics at UC Berkley, he discusses the financial and political challenges the EU faces with fighting to keep the EU from completely falling apart, he makes the comparison of an American state vs a country within the European Union. Along with the financial problems plaguing the EU there are serious social and political hurdles, “Europeans don’t do these things (think of themselves as completely united) because they see themselves as Greeks and Germans first. They don’t interfere in the “sovereign prerogatives” of other member states.”
2. Discussion of the financial state of several of the major EU members and the effects they have on each other with the positive and negative aspects of the Euro (pro and con argument)
a. Discuss the current state of the Euro and financial issues most prevalent within the EU giving recent developments.
b. Discuss prominent social/political issues and in the EU
3. Possible causes of the current state of financial crisis.
4. Analysis of the Stability and Growth Pact (SGP)
a. Discuss when and why it came about
b. Review the major violators of the SGP and what impact that has on the rest of the EU
5. Review historical implications in Europe and the past and present effects they have on the current situation.
6. Discuss current affairs pertaining to this issue (topics of interest)
Schedule for Completion:
May 30th, completion of research
June 30th, refined thesis, completion of two pending interviews
July 30th, completion of economic/finance section of draft
August 30th, completion of historical section of draft
September 30th, submit first draft/start revision
October 30th, submit final draft, revise (hopefully defend)
Brash, Donald. "The Pros and Cons of Currency Union: a Reserve Bank Perspective." 2008. Reserve Bank of New Zealand. 2011 .
-Great article from the bank of New Zealand discussing the pro and cons of a currency union, reasons they would want to enter into a larger one, which countries would best benefit them in the union but also some of the major draw backs. He specifically discusses the aspect of losing monetary control of an individual country when a currency union is started.
Brown, Brenden. Euro Crash: The Implications of Monetary Failure in Europe. Palgrave Mcmillan, 2010.
-Brown's book further explores the path the EU is on with the Euro and increasingly weakening countries. The author also goes into further detail about what would likely happen to the EU should more defaults come as a result of the extensive bailouts possible needed.
Eichengreen, Barry. "European monetary unification: a tour d'horizon." 2009. http://people.exeter.ac.uk. Feb 2011 .
—. "Europe's Trojan Horse." February 2010. Project Syndicate. 2011 .
—. Globalizing Capital: a History of the International Monetary . Princeton University Press, 2008.
European Commission. European Commission of Economic and Finanial Affairs. 2010. April 2011 .
International Monetary Fund. "Currency Unions." 2010. IMF. 2011 .
Kesner-Škreb, Marina. "Stability and Growth Pact." 2008. Financial Theory and Practice.
-Great article on the Stability and Growth Pact and what exactly it entails and more specifically those countries that instigated it and those that are in violation of the pact.
Lynn, Matthew. Bust: Greece, the Euro and Sovereign Debt Crisis. John Wiley & Sons Inc., 2011.
There's much reading yet to do with Lynn's book but so far he brings up some good topics about current fiscal problems the EU is facing and some implications for the future of the EU/Euro, specifically regarding the bailouts and how they are just a band aide on the problem
Masson, Paul and Mark Taylor. Policy Issues in the Operation of Currency Unions. Campbridge: University Press, 1993.
-Masson and Taylor discuss the functions of a currency union and get into great details about the inner workings and where they fall short but how political power pushes them on, NOT economic power.
McNamara, Kathleen. The Currency of Ideas: Monetary Politics in the European Union. Cornell University, 1998.
-McNamara discusses in details some of the reasons that countries enter into currency unions and some of the major pitfalls of these relationships. She does a great job in discussing the strains associated with these unions and some of what the EU is and has been facing.
Pissarides, Christopher. "London School of Economics, The Labor Market and the Euro." http://www.new.ucy.ac.cy. Feb 2011 .
-Pissarides discusses the aspects of a currency union, the expectations but the sometimes overlooked detail of the work force through the various countries involved in the unions, great implications for the EU.
Roubini, Nouriel. "Teaching PIIGS To Fly." 2010. Project Syndicate. April 2011 .
-Roubin's article on the PIIGS counties is very interesting, he basically covers the troubles that lay ahead with the EU with the current debt crisis and what the EU might face if major changes are not applied.
Sarkar, Salil. "Will Austerity Save Europe From Crisis." http://rfi.my/. Feb 2011 .
—. "Will The Euro Survive?" http://www.english.rfi.fr. Feb 2011 .
-Sarkar discusses the specific aspect of the lack of a central federal body to more tightly unify the countries as well as the heavy burden of debt each country holds reinforces the problems the EU is facing and if their attempts of a solution are really making enough of a difference.