Committee on Economic and Monetary Affairs (ECON)

The topic is: The euro area is diverse and policy-making at the national level is the most effective method for many economic decisions. Yet, national policies cannot be decided in isolation if their effects quickly propagate to the euro area as a whole. Therefore, such national policies must reflect fully the realities of being in a monetary union.- President of the European Council, Herman Van Rompuy How can the Economic and Monetary Union best contribute to growth, jobs and stability?

Today,after a decade of achievements the Economic and Monetary Union is facing a serious economic crisis which threatens to expand across the entire Union. The crisis roots began in 1997, when the 27 Member states of the European Union agreed to The Stability and Growth Pact,having a common purpose: to facilitate and maintain the stability of the Economic and Monetary Union. Although, the SGP was initially proposed by German finance minister, Theo Waigel in the 90s, Germany was the first country that broke the rules, along with Italy.After that, France followed. Of the big economies, only Spain kept its nose clean until the 2008 financial crisis; the Madrid government stayed within the 3% limit every year from the euro's creation in 1999 until 2007. There was a big build-up of debts in Spain and Italy before 2008, in the private sector- companies and mortgage borrowers-who were taking out loans. But debts are only part of the problem in Italy and Spain. During the boom years, wages rose and rose in the south (and in France). But German unions agreed to hold their wages steady. So Italian and Spanish workers now face a huge competitive price disadvantage. Indeed, this loss of competitiveness is the main reason why southern Europeans have been finding it so much harder to export than Germany. According to the European Union rules, countries which are using the euro are not allowed to have an annual deficit of more that 3%of GDT, but several countries have failed to keep to that rule in recent years.Also, the unemployment rate has been rising significantly in the followings countries :Spain, Italy, Greece and Slovakia.Countries that have needed bail outs.Altogether, Portugal, Ireland, Spain, Cyprus and Greece have been rescued or asked for a bail out testimony to the fact that they have not been able to cope with the rigourous of the single currency. These countries are teetering in the relegation zone.However, the cost of a five countries exit would clearly be much heavier than the exit of Greece.Therefore, because of the loss of confidence the foreign investitors and banks stop lending and try to pull out their money. In a few words Europe confronts with a lack of credibility, so moreover than the Euro crisis, the markets consider this a bigger problem to deal with. Many economists including Giulio Tremanti, the Italian Finance Minister compared the current Europe situation to the Titanic, trying to underline the fact that european countries should be aware of the consequences of their actions, because when a ship hits the iceberg, everyone goes down together Germans, Italians, Greeks, Irish and French.Consequently, this reality strengthens the fact that Euro`s zone problems can be solved merely by indebted countries slashing their way to presperity.Also, as the biggest creditor country , Germany holds the key to resolving the euro zones debt crisis.Although, the Europes future counts on

Germany s chancellor Angela Merkel, she has been woefully slow to get to grips with the Euro zones troubles, largerly because German Voters do not want to bail out weak countries such as Greece, Ireland and potentially Portugal. Not to mention the fact that several european countries entered the crisis with different starting points, which means that not all public finances in the European countries are equally badly hit today.Despite the fact that many of the European countries are struggling with public finances, a lot of the countries have large private savings surpluses. This fact indicates that liquidity and capital are present, but that European consumers and investors generally do not have much confidence in the European economy. Some of the Scandinavian countries,Austria, Germany and the Netherlands have relatively large private savings surpluses, these countries have the option to stimulate the economy and at the same time there is greatpotential hidden in the savings. If the confidence returns and consumers and investorsbegin to consume and invest again, it will certainly help the Europe to get its economy back on track.As previously described, several European countries still have a good starting point and they can stimulate the economy, though this option is limited.The main problem is that the investors and consumers are discouraged by the future, being afraid of further deterioration of the crisis. If the current situation is turned and more optimism and positivity is spread throughout Europe, it can create a chain reaction of positive confidence. A relatively modest fiscal stimulus may be that recipe that triggers the European economy, acting as a catalyst to create confidence and optimism.The perfect exemple that shows the employments effects of a fiscal stimulus is represented by Denmark, Germany, Finland and Sweden, countries where the effort could create 1.5 million jobs in EU. More than 1 million jobs out of a total of 1.5 million jobs are created by the positive confidence this corresponds to approx. 2/3 of total job creation in the EU. The effects are greatest in the countries participating in the effort, but also non-stimulating countries, such as Poland, Spain, Portugal and Greece will experience positive economic effects,since demand is rising in a row of the countries they trade with. To this end, the European countries, which still have the power for fiscal maneuvering, should stimulated the economy in order to generate confindence all over the Europe. The six countries that are considered able to gain the investors confidence( Netherlends, Sweden, Finland, Germany, Austria, Denmark) will register an increase of consumption and investments.Also,in the rest of the Europe the effect from increased confidence is expected to be half of the effect in the countries that are part of the effort. With confidence spreading all over Europe and lower long-term interest rates, the southern European countries will definitely experience considerable effects on growth and employment. In Spain more than 180.000 jobs will be created when consumption, investments and exports increase. In Italy close to 140.000 jobs will becreated and in Portugal and Greece the job creation lies in the a rea of 40.000 jobs. All in all investment, confidence and lower interest rates can create close to 2.5 million jobs in EU, nearly bringing the European employment back on its 2008-level before the crisis hits. Investment and confidence can therefore help Europe get back on track preventing the crisis to extend over a long time.If Europeans restore confidence and greater willingness to consume and invest the future may look brighter.One thing is certain,the future

challenges for Europe are both to put an end to the debt crisis and to create trust which in turn can generate growth and jobs in Europe. On the other side, according to the oppinions of the most importants economists of the world, the European crisis is not just about debt or deficits -- it's about a dysfunctional political system.Therefore, the European crisis revealed every single problem of the current economic system and its complicated architecture, which suffered various changes during the years. Now it reached to an overloaded because of the debt crisis,euro problems and difficulties related to the loans, consequently there is the posibility that the system may not handle all these problems.The situation described above leads us to only one solution: a new economic system,which should be designed by the political leaders and the ecomonists with the joint purpose to solve all the problems which the European countries are dealing with. According to the oppion of the France president Nicolas Sarkozy, Europe needs a new Bretton Woods, the system should be rebuild from the beginning. The same oppion is shared by the prim-minister of Greece too, who underlined the fact that the governments all over the world should build a new global financial architecture as it once happened at the Bretton Woods. All in all, the future of the Europe is in the hands of the major economic powers of the World, they are the only ones who are able to end the debt crisis, but this main solution needs the support of the entire European Union. If Europe wants a stable future,each coutry should take precautions to prevent another debt crisis and this means that governments have to focus on a solution to their country problems, trying to improve its economy.

Made by Deac Petruta Gabriela From Toplita,Harghita,Romania