6. Requisites for an OCA
• Labor mobility
• Financial capital mobility
• Wage and price flexibility
7. Requisites for an OCA
• Labor mobility
• Financial capital mobility
• Wage and price flexibility
• Fiscal transfer mechanism
8. Requisites for an OCA
• Labor mobility
• Financial capital mobility
• Wage and price flexibility
• Fiscal transfer mechanism
• Synchronized business cycles
9. Steps towards an OCA
Source: “Treaties of the European Union.”
https://en.wikipedia.org/wiki/Treaties_of_the_European_Union. Downloaded February 12, 2013
10. Steps towards an OCA
• European Economic Community (1957)
• Belgium, France, Italy, Luxembourg,
Netherlands, and West Germany
• Customs union
• Price unification and flexibility
• Removal of legal restrictions on labor and
capital mobility
11. Steps towards an OCA
• European Economic Community (1957)
• Economic and Social Committee (1958)
• Consultative body of unions, employers,
and “special interests”
• The European “3rd way”
12. Steps towards an OCA
• European Economic Community (1957)
• Economic and Social Committee (1958)
• Common Agricultural Policy (1962)
13. Steps towards an OCA
• Economic and Social Committee (1958)
• Common Agricultural Policy (1962)
• European Community (1967)
• Joined with European Coal and Steel
Community and European Atomic Energy
Community
• Planning entities
14. Steps towards an OCA
• European Community (1967)
• European Monetary System (1978-79)
• Spurred by the demise of the Bretton
Woods system
• Exchange rate fluctuation bounds set
• Elimination of legal restrictions on labor
mobility
15. Steps towards an OCA
• European Community (1967)
• European Monetary System (1978-79)
• Single European Currency Act (1987)
• Establishes intention to create a unified
currency
16. Steps towards an OCA
• European Monetary System (1978-79)
• Single European Currency Act (1987)
• Maastricht Treaty (1992)
• Name changed to the European Union
• Single currency implementation strategy
established
17. Steps towards an OCA
• European Monetary System (1978-79)
• Single European Currency Act (1987)
• Maastricht Treaty (1992)
• European Monetary Institute (1994)
• Established coordinated central bank
actions under the aegis of the ECB
18. Steps towards an OCA
• Growth and Stability Act (1997)
• National debt < 60%
• Budget deficit < 3%
• Inflation < 3.2%
• Long-term interest rates < 7.2%
• Participation in the EMS
19. Early judgement
• Mundell
• “This is in my view a great step
forward ...”
• Friedman
• “I have very low expectations ...”
20. Was it enough?
• Countries
• Belgium, France, Italy, Luxembourg,
Netherlands, Germany, Denmark, Ireland,
Greece, Portugal, Spain, Austria, Finland
• Special cases
• Sweden, United Kingdom
21. Labor mobility
Source: Gakova, Z. and Dijkstra, L. 2008. Labour Mobility
between the Regions of the EU-27 and a Comparison with the US.
22. Labor mobility
Source: Gakova, Z. and Dijkstra, L. 2008. Labour Mobility between
the Regions of the EU-27 and a Comparison with the US.
37. Current situation
Source: Eurostat, Google Public Data
Source: Wall Street Journal,
http://online.wsj.com/article/SB10001424127887324162304578303503840132168.html,
downloaded 2/19/2013.
43. Limits on the ECB
• Unified goal
• Medium term inflation no greater than
2%
• Outright Monetary Transactions
• September 2012
44. Current Bailouts
• European Financial Stability Facility
• May 2010
• €440 billion
• Backed by Germany
• Borrowing up to capital invested in ECB
45. Current Bailouts
• European Financial Stabilization Mechanism
• January 2011
• €60 billion
• Bonds guaranteed by the EU
46. Current Bailouts
• Brussels Agreement
• October 2011
• 50% write-off of Greek debt
• Later increased to 53.5%
• Approximately a €100 billion reduction