Bài đọc 8

Từ bài đọc sau, hãy rút ra những cột mốc chính hình thành liên minh tiền tệ Châu
Âu. Cấp độ hội nhập sâu (centralization - tập trung hóa) được thể hiện ở những
chi tiết nào?

THE INTERNATIONAL FIX—MONETARY UNION

Since the breakup of the Bretton Woods fixed-rate system, the
countries of the European Union have attempted to establish and
maintain fixed exchange rates among their currencies. In 1979.
they established the European Monetary System, and a subset of
the countries established fixed exchange rales among their
currencies through the Exchange Rate Mechanism (ERM). The
Maastricht Treaty, approved in 1993. committed the countries to
a monetary union and a single currency, the euro. In a monetary
union, exchange rales air permanently fixed and a single
monetary authority conducts a single, unionwide monetary
policy.5 Eleven EU countries established the monetary union in

■*EI Salvador's government could attempt to negotiate an

agreement with the U.S. government to gain a share of the
forgone interest, but the U.S. government has not
appeared to be receptive to encouraging dollarization by
sharing seigniorage profits with other countries.
Other monetary unions are the CEA franc zone and the
East Caribbean Currency Union among eight Caribbean
island countries. The CEA franc zone has two groups, the
eight members of the West African Economic and
Monetary Union and the SIX members of the Central
African Economic and Monetary Community.
1999. with seven more countries joining during 2001-2014. This final
secLion of lhe chapter examines the economics of monetary union as lhe
ullimaLe fixed exchange-rale arrangement, by looking al lhe experience of
the EƯ during the pasl several decades.
Exchange Rate Mechanism
In 1979, Germany. France. llalv. the Netherlands. Belgium. Denmark.
Ireland, and Luxembourg began to fix the exchange rales among their
currencies as participants in the Exchange Rate Mechanism. Spain joined the
ERM in 1989. Britain in 1990. Portugal in 1992. Austria in 1994. Finland in
1996. and Greece in 1998.
The ERM was an adjustable-peg system. There were 11 realignments
during the first nine years. 1979-1987. with a tendency for the Belgian.
Danish. French, and Italian currencies to devalue. Then from 1987 through
1992. there were no realignments. In fact, the discipline effect on national
inflation rales seemed to work quite well. Germany was generally regarded
as the lead country in the system due to its economic size and the prestige of
its central hank. Germany maintained a low inflation rale, and the other ERM
countries were disciplined by the fixed exchange rales to lower their inflation
rales toward the German level.
By mid-1992. the ERM seemed to be working very well. As part of
“Europe 1992." the general effort to dismantle barriers to permit free
movements of goods, sen ices, and capital within tile EU. most countries had
removed capital controls by 1990. The EL countries had completed the
drafting of the Maastricht Treaty, which contained die plans for monetary
union, and they were in the process of approving it.
The ERM exchange rates came under serious pressure beginning in
September 1992. Several things contributed to the severity of the pressure.
International investors became worried that the exchange-rale values of
several currencies in the ERM were not appn>- priale. For instance, the
Italian lira appeared to be overvalued, given that the Italian inflation rale had
remained above that of the other ERM members. In addition, international
investors became worried by policy tensions among the ERM members.
German policymakers were placing full emphasis on reducing and
controlling German inflation, while policy makers in several other countries,
including France and Britain, probably preferred to shift the emphasis to
reducing unemployment. Furthermore, in a general \ole in 1992.
plans for monetary union, and they were in the process of approving it.
The ERM exchange rates came under serious pressure beginning in
September 1992. Several things contributed to the severity of the pressure.
International investors became worried that the exchange-rale values of
several currencies in the ERM were not appropriate. For instance, the Italian
lira appeared to be overvalued, given that the Italian inflation TJle had
remained aboye that of the other ERM members. In addition, international
investors became worried by policy tensions among the ERM members.
German policymakers were placing full emphasis on reducing and controlling
German inflation. while policymakers in several other countries, including
Hance and Britain, probably preferred to shift the emphasis to reducing
unemployment. Furthermore, in a general vole in 1992. Denmark rejected the
Maastricht Treaty* and the upcoming French vole was expected to be close.
These voles raised doubts about eventual monetary union, and they raised
doubts about the countries’ current commitments to fixed exchange rales.
Finally, the removal of capital controls meant that international investors and
speculators could move large amounts of financial capital quickly from one
country and currency to another. Official defense of the fixed rales was
difficult in the face of these large speculative flows.
As international investors and speculators shifted to expecting devaluations
against the DM by a number of ERM countries, large amounts of capital
flowed and the central banks mounted massive defenses. Italy and Britain
surrendered and left the system. As speculative attacks continued in late 2002
and early 2003. the Spanish. Portuguese, and Irish currencies were dey alued.
Another large speculative attack occurred in July 1993. The ERM widened
the allowable band for exchange-rale movements around die central fixed
rates, but there was no realignment. Willi the exception of devaluations of the
Spanish and Portuguese currencies in 1995. exchange rales among the ERM
currencies were calm after 1993, Italy rejoined in 1996,
 The ERM illustrates many of the points made in the first half of the chapter
about the strengths and weaknesses of fixed exchange rates. The ERM
exchange rales were generally steadier than floating rates were during this
period, although occasional realignments disturbed the stability. The fixed
rales applied pressure on other ERM countries to reduce their inflation rales
toward the German level. Differences in goals between Germany and several
other ERM countries in the early 1990s led to strains in the system, and these
other countries could not use monetary policy to address their internal
imbalances. The removal of capital controls made the defense of the fixed
rales through official intervention more difficult in 1992 and 1993. In fact,
several countries temporarily reimposed or Lightened their capital controls as
part of their defense efforts. These controls helped in the defense of the fixed
exchange rales, but they ran counter to the broad efforts to create a single EL
market
European Monetary Union
In 1991. the EL countries completed the draft of the Maastricht Treaty
(named for the Dutch town where it was negotiated) to set a process for
establishing a monetary union and a single, unionwide currency. After several
close national voles, including a defeat in Denmark that was later reversed, all
EL countries approved the treaty, and it became effective in November 1993.
The Maastricht Treaty specified the procedure for the establishment of the
European Monetary Union. To participate in the monetary union, a country
had to meet five criteria:
• The country’s inflation rale must be no higher than 1.5 percentage points
above die average inflation rate of the lliree ELJ countries with die lowest
inflation rates.
• Its exchange rales must be maintained within the ERM bands with no
realignments during the preceding two years.
• Ils long-term inleresi rale on government bonds must be no higher than 2
percentage points above the average of the comparable interest rales in lhe
three lowesl- inflation countries.
• The country ’s government budget deficit must be no larger than 3 percent
of the value of its GDP.
• The gross government debl must be no larger than 60 percent of its GDP
(or lhe country must show satisfactory progress to achieving these two
fiscal requirements in the near future).
The criteria were intended to measure whether the country's performance had
converged toward that of the best-performing EU countries so that the
country was ready to enter the monetary union.
In May 1998. a summit of El’ leaders decided which countries met the live
criteria and would be members of the new euro area. With some liberal use of
the "satisfactory progress’’ exception for the government debt criterion. 11
countries were deemed to meet the criteria and chose to join the monetary
union. Britain. Denmark, and Sweden could have qualified but chose not to
join the union. Greece did not then qualify but was able to join two years
later, rhe 12 countries that joined the EƯ in 2004 and 2007 are eligible to join
the monetary union and adopt the euro if they meet the five
criteria. Slovenia joined in 2007. Cyprus and Malta in 2008. Slovakia in
2009. Estonia in 2011, and Latvia in 2014.
The European Central Bank (ECB) was established in 1998 as the center
of the European System of Central Banks, a federal structure that also
includes the national central banks as operating arms. On January 1. 1999.
the monetary union began and the ECB assumed responsibility for monetary
policy in the euro area.
Modeled after the Bundesbank (the German central bank). Ihe ECB is
designed lo be independent from direct political influence and is mandated to
conduct unionwide monetary policy to achieve price stability. Il has defined
price stability as a consumer price inflation rale of less than but close to 2
percent per year. Ils decisions about changes in monetary policy are made by
its governing council, composed of the heads of the member national central
banks and the six members of the executive committee. While the council is
not overtly political, there is room for national economic interests to sway
unionwide policy decisions.
As the ECB began its operations, there were concerns about how
effectively it would function. As shown in Figure 25.2. the exchange-rale
value of the euro declined from its introduction in 1999 to late 2000. Among
the factors that probably contributed to the euro's weakness were confusing
and poorly worded statements by ECB officials. The early operating issues
were then largely resolved.
What can the EU countries achieve with monetary union and what did they
give up or risk? The European Monetary Union provides examples of many
of the issues that we discussed in the first half of die chapter.6
The gains from monetary union are based on the elimination of all
exchangerale concerns. The shift to a common currency is a permanent fix
and more. 11 ends exchange-rate variability and risk. Il ends one-way
speculation about changes in pegged exchange rales. Il eliminates all foreign
exchange transaction costs. Monetary union is
 FIGURE
Nominal
25.2
Exchange-
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'This discussion IS also largely an application of the

analysis of an optimum currency area—the Size of
the geographic area that shows the best economic
performance
part of the broad With fixedintegration
drive to European exchangeand rates (or one
single European
currency) within the area and floating exchange rates
markets. Estimates of the increase in international trade of products
witharea
within the euro currencies outside
range from the15
10 to area.
percent In addition, the
elimination of transaction cosLs and exchange-rate risks has led to
greater integration of European financial markets, especially markets
for government and corporate bonds, with the potential for greater
gains from intertemporal trade (international lending and borrowing).
The risks and possible losses from the European Monetary Union
are the result of economic shocks that affect different member
countries in different ways. Economic conditions sometimes van
across the countries. Especially, weak demand causes recessions or
slow growth in some countries. For example. Germany’s domestic
product grew by less than 1 percent per year during 2000-2005.
Demand in other countries grows 1(X) quickly, causing inflation
pressures. For example. Ireland’s domestic product grew by oxer 6
percent per year during the early 2000s. and it experienced rapidly
rising wages and a housing price bubble. With monetary union, each
country has given up both the ability to run an independent monetary
policy that could respond to domestic imbalances and the ability to use
exchange-rate changes as an adjustment tool.
In the absence of national monetary policy and national exchange
rales, there are three mechanisms that can reduce national imbalances
w ithin the monetary union— cross-national resource movements,
national price-level adjustments, and fiscal policies. We have seen a
major test of these mechanisms during the euro crisis that began in
2010 and its aftermath. Chapter 1 and the box "National Crises.
Contagion, and Resolution” in Chapter 21 provide overviews of the
euro crisis.
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One way to adjust national imbalances is for workers to move from
areas of weak demand to areas of strong demand. If labor mobility is
high, adjustments to internal imbalances can be speeded by people
moving from places where unemployment is high to places where
demand for labor is strong. Regional migration is an important way
that different regions in the United Stales adjust to local shocks. Most
studies conclude that labor mobility across EU countries (and even
within these countries) is relatively low and is likely to remain low.
Less than 3 percent of EU citizens live in an EL country other than the
one in which they were bom. Even mobility between regions within
countries is small. Adjustment also could occur with capital moving to
seek out and employ underutilized resources like unemployed labor.
Bui. given rigidities in labor markets and labor practices, capital may
not move in this wav—in fact capital may instead flee from problem
areas to those that are booming.
A second way to adjust is through changes in cross-national price
competitiveness (changes in national real exchange rates). Countries
with high unemployment can boost aggregate demand by using
improved price competitiveness to increase national exports and to
decrease national imports. However, for the euro crisis, we saw the
limits to this kind of adjustment. As shown in the box "International
Indicators Lead the Crisis*' in Chapter 16. by 2008 Greece. Portugal,
and Spain had developed large current account deficits. Here we see a
drawback of monetary union, the inability to devalue in the face of
fundamental disequilibrium. Instead of being able to adjust the
country's nominal exchange rate to build international price
competitiveness. Greece. Portugal, and Spain each had to pursue an
"internal devaluation.” Each tried III reduce wages and other costs
relative to other El.’ countries, such as Germany, a process that proved
to be difficult and painful.
With cross-national resource movements unlikely to be helpful, and
with “internal devaluation” to build international price competitiveness
being slow, the remaining
adjustment mechanism is fiscal policy, al the union level or at the
national level. For the euro area (and for the broader European Union
>. there is almost no unionwide fiscal policy. The EL’ fiscal budget in
total is only aboul 1 percent of EU GDP. There are almost no
"automatic stabilizers" across countries. That is. higher lax revenues
from the growing countries are not “automatically" shifted to the
recession countries through lower taxes and larger expenditures in the
recession countries. And there is no active union wide fiscal policy to
help (he recession countries,
That leaves each country’s national fiscal policy as a government
tool to improve the country’s domestic performance, but in a monetary
union national fiscal policy is a two-edged sword. National fiscal
policy can be used to move the country toward internal balance, and it
will be powerful if capital flows are very elastic, as they are likely to
be in a well-functioning monetary union. However, national fiscal
policy can also become a source of instability, a source of negative
shocks for the country and possibly for the monetary union. A country
's government will feel less pressure to keep its fiscal deficit under
control if it believes that the union's central bank or the governments
of other countries in the union will come to its rescue if die deficit
becomes unmanageable.
As part of the process of moving toward monetary union, the
German government insisted on tile Stability and Growth Pact, which
mandates that national government budget deficits should be no more
lhan 3 percent of GDP. with temporary exceptions for unusual external
shocks or severe national recessions. Countries dial violate the rule
were to be subject to monetary sanctions. Such a rule can reduce the
risk that excessive fiscal deficits become a source of instability. The
rule also limits the use of national fiscal policy to address internal
balance, and it can al limes turn national fiscal policy into a
destabilizer. For instance, if the government budget deficit begins
close to 3 percent and a mild national recession hits, the government
may be compelled 10 raise taxes or cut government expenditures to
prevent the deficit from rising above 3 percent. These fiscal changes
would make the recession worse.
 With slow grow th in several euro-area countries, including Germany
and France, in the early 2000s. the fiscal situations in these countries
deteriorated. The budget deficits of Germany and France moved above
3 percent of their GDP and stayed there for several years. Il made no
sense for them to aggressively raise taxes or cut spending, which would
have made their economies even weaker. The EL’ decided not to
impose fines (although strictly the pact called for fines), and it became
clear that the pact was largely unenforceable. In early 2005 the Eli
countries revised the pact to recognize a much broader set of
exceptions.
The dual roles of national fiscal policy were al the center of the euro
crisis, beginning with Greece in 2010. After joining the euro area in
2001, Greece looked fairly successful. with annual real GDP growth
dial averaged about 4 percent to 2007. but its growth was based loo
much on fiscal deficit spending and foreign borrowing. Although the
data were misreported tor years by the Greek government, we now
know dial Greece had never met the 3 percent deficit limit. With the
recession caused by lhe global financial and economic crisis. Greece’s
fiscal deficit and debt rose to high levels. By April 2010 the Greek
government effectively lost access to regular borrowing—die interest
rale al which the Greek government could issue new government bonds
rose to prohibitively high levels. Either the Greek government had to
instantly slash government spending and enact a massive tax increase
or it needed an official rescue. In May 2010 the Greek

government received a large official rescue loan program to provide

funds to cover lhe ongoing Greek govemmenl deficit.
The crisis spread to other countries. Several other countries had
precarious fiscal deficits. Ireland’s government took on huge debts
when it rescued the country’s banks. Ireland received a large bailout
program in November 2010. In May 2011 Portugal had to be rescued
with another large bailout program. By mid-2011, investors were also
increasingly concerned about the government deficits and debts of
Spain and Italy, and interest rates on their bonds jumped. In March
2012. with Greek government debt equal to more than 150 percent of
its GDP. Greece required a second bailout program, and Greece’s
government defaulted on most of its privately held debt.
Greece. Portugal, and Ireland went into severe national recessions.
In addition to structural reforms I liberalizing regulation of labor
markets and product markets) that may eventually improve national
economic performance, the terms of the bailout programs included
reductions in government expenditures and increases in taxes to reduce
the fiscal deficit. Such austerity forced national fiscal policies to make
the recessions worse.
The bailouts were actually a form of unionwide fiscal policy
compelled by the national crises. Although some of the funding for the
rescue loans came from the International Monetary Fund, most of the
funding came from other euro-area countries. In 2010. the countries
created the temporary European Financial Stability Facility, and in
2012 they replaced it w ith the European Stability Mechanism, with a
permanent lending capacity of €500 billion. (This may sound like a lot.
but it probably would not have been large enough to rescue a country
like Spain or Italy. >
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The bailouts were actually a form of unionwide fiscal policy
compelled by the national crises. Although some of the funding for the
rescue loans came from the International Monetary Fund, most of the
funding came from other euro-area countries. In 2010. the countries
created the temporary European Financial Stability Facility, and in
2012 they replaced it with the European Stability Mechanism, with a
permanent lending capacity of €500 billion. (This may sound like a lot.
but it probably would not have been large enough to rescue a country
like Spain or Italy.)
Again led by Germany, the euro area has also attempted to establish
a fiscal compact that lightens up the limits on national fiscal deficits
and debt. New rules and a new treaty require, with some exceptions,
that each country achieve a near-zero structural fiscal balance in the
medium term and have in place a program steadily to reduce a
structural fiscal deficit that is initially loo large. If a country is not in
compliance, the European Commission, die EUs executive body, can
recommend financial sanctions. which are imposed automatically
unless the European Council, an EU body of national ministers,
specifically rejects the recommendation. In addition, each country must
incorporate the structural balance rules into its core national laws.
The member countries of the euro area have a strong political
commitment to EMU and the single currency. The euro crisis calmed in
2012. and the euro survived. Still the tension remains between national
fiscal policy as a tool for stabilizing the macroeconomy of a euro-area
country and national fiscal policy as a source of instability for the
country and for the monetary union.
More broadly, the problems in the euro area make it even less likely
that countries in another part of the world will establish their own
monetary union. As we have noted in this chapter, the major trend in
the world outside of the European Union is toward floating exchange
rales with their promise of some degree of national independence in
economic policies.