European Union - Introduction, Euro Zone, Current Scenario, Problems Faced, Future Prospects

1. European Union
By – Saurabh Maloo

2. INTRODUCTION
What is EUROPEAN UNION (EU)?
• Unique Partnership among its Member States
• An Economic to Political Union
• A Cornerstone to European Stability & Prosperity
Purpose Of European Union
• A Free Customs Union
• A Common Trade Policy
• A Common Currency
• Schengen Area of Free Movement

3. SIMPLE REASON
AFTERMATH
OF
WORLD WAR I & II
WHY IT WAS FORMED?

4. DIFFERNET TREATIES, AGREEMENTS & EVENTS
THAT LED TO ITS FORMATION
1944
BENELUX UNION
1947-51
MARHALL PLAN
1948
OEEC
FORMATION
1950
SHUMAN
DECLARATION
1957
TREATY OF
ROME
1973
DENMARK,
IRELAND & UK
1979
1ST DEMOCRATIC
ELECTION
1980
GREECE,
PORTUGAL &
SPAIN
1992
MAASTRICHT
TREATY

5. Governing Bodies
• Legislative
and
Budgetary
Authority.
• 751
members.
• Provides
political
Direction.
• They meets
four times a
year.
• Executive arm
of the Union.
• One appointee
from each
state.
• Drafts all laws.
• EU’s Judicial
Branch.
• Controls
Monetary
Policy
• Ensures
judicious
expendit
ure of
budget
European
Parliament
Council
European
European
Commission
European
Central Bank
European
Court of
Justice
Court of
Auditors

6. Eurozone
It is a monetary union of 19 of 28 European union member states which have
adopted euro as their common currency and sole legal tender.
In 1998 eleven member states of European Union had met the Eurozone
convergence earlier, and Eurozone came into existence.
Members of Eurozone
The Eurozone consists of Austria, Belgium, Cyprus, Estonia, Finland, France,
Germany, Greece, Ireland, Italy, Latvia, Malta, the Netherlands, Portugal, Slovakia,
and Spain to name a few. Greece qualified in 2000 and was admitted on 1 January
2001 before physical notes and coins were introduced replacing all national
currencies. Between 2007 and 2015, seven new states acceded.

7. Benefits of Eurozone
• With a single currency, there will be no longer a cost involved in changing
currencies; this will benefit tourists and firms who trade within the Euro area.
• The exchange rate uncertainty undermines business confidence in investing.
Therefore with a single currency business confidence should improve leading to
greater trade and economic growth.
• The introduction of the Euro appears to have reduced the cost of trading in
bonds, equity, and banking assets within the Eurozone.

8. Disadvantages
• Lack of strong federal government: each country within Eurozone has its
own federal government that decides its own budget and passes.
• Two speed economies: Due to disparities in inflation, economic growth,
productivity, laws, it was noticeable that a two speed European economy
formed certain countries like France, Germany; which had efficiency,
productivity thus had competitive advantage over other countries like
Greece and Spain, hence resulting in two different economic growth with
in Eurozone.

9. What is European debt crisis ?
European debt crisis also know as European sovereign debt crisis is a multiyear
debt crisis that has taken place in EU since 2009.Several eurozone members such
as Greece, Portugal, Spain, Cyprus were unable to pay or refinance their
government debt or bail out over indebt bank under their national supervision
without the assistance of third part like IMF, European central Bank and other
European countries.

10. Major causes of the crisis
• Easy credit condition during 2002 to 2008 period that encouraged high risk
lending and borrowing practices.
• Highly deficit fiscal policies of the governments much more than set target of 3%.
• Financial crisis of 2007-08.
• Approach used by states to bail out banks and private bond holders.

11. Greece Crisis
In late 2009 after the newly elected PASOK government of Greece stopped masking its
true indebtness and budget indicators fear of first European sovereign default came
into public.
The revised forecast by new government showed Greece budget deficit was around
12% and its debt exceed more the $400 billion about 120 of its GDP that time.
The Greece bond rates increased highly showing lack of investors to take risk leading
its sources of revenue decrease drastically and looking for help from international
organisation and EU.

12. Causes of Greece Crisis
• Easy credit condition-After the formation of Euro and European union economical
unification credit rating for countries like Greece improved.
• High deficit budget-Greece government had very high spending on their social
programs such as pension scheme and health care.
• Uncompetitive economic of Greece- The economic productivity of Greece had
not improved much after formation EU leading to high trade deficit.
• Tax evasion.

13. Crisis Response
EU , IMF and EUR agreed that this unconditional and disorderly default in Greece
would extremely risky and should be avoided to save Greece and European
countries.
• May 2010-First financial assistance from EU and IMF of around $158 billion was
provided to Greece .
• June 2011-Another round of assistance was provided of $150 billion on condition
that large budget reforms will be taken by Greece.
• European central bank bought Greece bond of around $50 billion .
Role of Germany- Germany was highly critical of giving assistance to Greece until it
they don’t obliged to high budget reforms and at time favoured exit of Greece from
EU.

14. BREXIT

15. HISTORY
• 1974 the first referendum.
• Referendum party UKPI.
• Negotiations for EU reform.
• Referendum Result.

16. Reasons for Brexit
• Trade
• Regulations
• Immigration
• Political Influence
Effects for Brexit
• Inside United Kingdom.
• Effect on Europe
• Effect on the world
• Effect on India

17. Migration Crisis
• Beginning of Migration (WORLD WAR 2)
• Post world war 2(1945-1983)
• Immigration from EU
• Migration from middle east.

18. Effect of Crisis
• Boost for labor force
• Pressure on economics
• Anti-immigration sentiments

19. Present Scenario

20. BREXIT
• Article 50 invoked on 29 March 2017 to formally initiate the withdrawal process.
• Expected to take at least 2 years
• The UK remains a full member of the EU until the withdrawal process is completed, and EU law
continues to apply in the UK until that time.
Huge Amount of Uncertainty:
• “Hard Brexit”: UK gives up full access to the single market, has full control over its borders, and
makes its own trade deals and laws.
• “Soft Brexit”: UK's relationship with the EU much closer to the existing arrangements but without
Britain being a full member state.
• Many believe the EU will take a tough line in Brexit negotiations, in part to discourage other
member states from contemplating a break with the EU
• Negotiation process: UK government defines what sort of relationship it wants with the EU-27.
Then, EU countries will formulate their position on the UK’s requests; some sort of compromise
deal, finally, a treaty setting out the new relationship to be ratified and implemented.
• Brexit also might dampen prospects for further EU enlargement, in part because the UK had long
been one of the staunchest supporters within the EU of continued expansion, including to Turkey.

21. GREECE
• Approved for $1.8 Billion Conditional Loan From IMF.
• On July 11, the European Stability Mechanism (ESM) announced that 7.7 billion
out of a total tranche of 8.5 billion euros would flow to the Greek state, of which
6.9 billion euros will cover loan maturities that expire this month.
• First bond issue since 2014: Issue a five-year bond maturing in 2022.
• But the funds to pay down that debt came from the European Stability
Mechanism, so Greece's overall debt hasn't been reduced, simply extended.

22. Economic Indicators
GDP growth: expected to remain constant at 1.9% in 2017 & 2018
Unemployment: continues its downward trend, but it remains high in many countries. In the EU
as a whole, unemployment is expected to fall to 8.0% in 2017 and 7.7% in 2018, the lowest since
late 2008. Due to rising domestic demand, structural reforms and other government policies to
encourage robust job creation.
Investment: expected to expand fairly steadily but remains hampered by the modest growth
outlook and the need to continue deleveraging in some sectors.
A number of factors support a gradual pick-up, such as rising capacity utilisation rates, corporate
profitability and attractive financing conditions, also through the Investment Plan for Europe.
(Juncker Plan)
The state of public finances is improving Lower interest payments and public sector wage
moderation should ensure that deficits continue to decline. In the EU the deficit to-GDP ratio is
expected to fall from 1.7% in 2016 to 1.6% in 2017 and 1.5% in 2018.

23. A temporary rise in headline inflation:
• Inflation in June 2017-1.3%
• Inflation has risen significantly in recent months, mainly due to oil price increases.
• The ECB has slashed interest rates below zero and injects billions into the eurozone every
month in the hope of lifting the economy, with stagnant prices taken as a sign of weak
consumer demand.

24. Political
• New President in France:
Emmanuel Macron: the socially liberal, pro-immigration, and pro-Europe. Ideas to
reform the euro zone as the core of the EU—a common investment budget,
establishment of a parliament and a finance minister.
• Divergence between Germany and France
• European Court of Justice has ruled that new trade agreements must be ratified
by the European Parliament, also by all national – and some sub-national –
parliaments across the EU (39 in total).
• Transatlantic Trade and Investment Partnership (TTIP) between the EU and the US
uncertain.

25. The Way Ahead..
1. Slow but Steady Progress towards Integration
Backed by - Rich Cultural Diversity
- Economic Crisis
A Greater Europe cannot be built without strong EU Governance and Visionary Leadership, yet these are two
issues that are notably missing at present
2. Expansion is a Costly Affair
If Great Experiment Succeeds
1. Creation of new Economic, Political and Military Force.
2. Enlargement to 25 Countries.
3. Population approaching 500 million.
4. Pose Real Challenges to United States.
If Great Experiment Fails
1. European Union may disintegrate eventually.
2. Conflict and Chaos may prevail.

26. The Way Ahead..
Difference in Expert’s Opinion
Complete Dissolution of EU
OR
More Effective Entity Altogether
Possible Future Scenarios
1. Muddling Through
2. Establishing Two Speeds
Core Countries Periphery Countries
A Looser, More Intergovernmental Configuration
OR
A Tighter, More Integrated Configuration

27. THANK YOU