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Integrat
ion or
Disinteg
ration
?
LEARNING FROM TH
E CREDIT CRUNCH:
TOWARDS FIS
CAL PRUDENCE IN
EU INSTIT
UTIONS
1
Third Conference on European Law & Policy
in ContextBirmingham, June 2012
WHERE ARE EU COMING FROM?
THE US & THE WORLD
Sub-Prime Selling
THE UK & THE WORLD
Northern Rock
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• Commission on houses sold more than their worth
• Lending to people who can’t afford to pay back – for Commission
• Buying and selling of shares on short-term gain basis
• Lack of consumer confidence in markets and banks
BOOM
BUST!HIGH PRICE ASKED & LOW PRICE WANTED = ‘UNFAIR PRICE’
CUSOMERS DEFAULT = IT’S THE BANKERS FAULT
WHAT DID EU DO WRONG?Crass Keynesianism (Quantitative easing)
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Increase money supply with printed moneyRecapitalised the banks
Secured pensions and savings Secured short-term national credit ratings
Goods inflation needs to grow Low demand caused disequilibrium
Jobs/wages needs to be tightened Low supply cased disequilibrium
Crass Monetarism (Fiscal Union) All ‘singing from the same hymn sheet’ Inability of Member States manage local
economies
CRASH!DEBT FUELLED GROWTH + DEBT FUELLED RECOVERY
= INFLATION, UNEMPLOYMENT, STAGFLATION x 2
WHAT MUST EU DO NOW?CENTRALISED BANKING AND
FISCAL POLICY
Manage the MarketECB• Sets single interest rate• Sets varying ‘Tobin rate’Court of Auditors• Single Stock Exchange• Monitor fiscal
management
DECENTRALISED FISCAL MANAGEMENT
Converge the Economies
EU Governments• Use single interest rate
as benchmark in order to use fiscal powers to• Converge wages• Converge
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SAVED!REGULATION + CONVEGENCE
= MANAGED GROWTH + HARMONOUS INTEGRATION
HOW DO EU GET IT DONE?
EUROZONE
Enhanced Co-operation
• Increase competence of• ECB/ESCB/Eurosystem• Court of Auditors• Regional treasuries
• Decrease competence of• National lending bodies
OUTSIDE EUROZONE
Voluntary Approach• Central Banks Regulate:• Stock markets• Interest rates
• Regional approach to:• Income taxes / credits• Business taxes / credits• Purchases taxes
5
SIMPLE!ONE FRAMEWORK FOR THE EUROZONE
DIFFERENT ONE’S FOR ALL THE OTHERS
WHAT ABOUT THE REST OF EU?
6
ONE SIZE!
DOES NOT FIT ALLIT ONLY LEADS TO FREE-FALL
United KingdomConverge or die?
Adopt EU interest rate for easier convergence?Use exchange rate for harmonising wages/goods
prices?
GreeceThe ‘Gold Standard’?
Gold for euros to increase money supply?The ‘Sweden Model’?
Tied to euro, but own currency to increase confidence?
GermanyGive up control or give up the ghost?
WHAT QUESTIONS DO YOU HAVE?• The Economics •Monetarianism•Keynesianism
• European Union Law•Enhanced Co-operation
• Anything else?
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