EUROPEAN MONETARY UNIFICATION STABILITY PACT

EUROPEAN MONETARY UNIFICATION STABILITY PACT

Part one

            The period of the recent past has been characterized by significant t development in the global economies. Some of the factor that has enhanced the realization of these developments is the attributes of technological advancement, globalization and international trade. Because of the unifying factors of the global economies, the disparities in some of the leading economies have been spread to the other economies because of the regional integration. Financial crisis is one of the adverse aspects that have been shared between various global economies. In reality, the aspects of financial crisis are detrimental for the realization of economic growth and the European Union have engaged the corrective measures to ensure that these detrimental attributes are handled in the economy (McDonald, Frank and Dearden, Stephen, 2012). The establishment of the European Monetary Unification Stability Pact has been of immense benefit because it has enhanced unification of 27 European states with the aim of enhancing economic development and stability amongst the member states (Artis & Winkler, 2009, Collignon, 2003). the results from the research work conducted has revealed that the formation of the European Monetary Unification Stability Pact is based on the realization of two incentives and these includes preventing the occurrence of crisis in the economy and correcting the disparities in the economy. Certainly, the preventive arm has the function of ensuring that the aspects of fiscal policies are stable and sustainable thereby enabling development of the economy (European Commission, 2012). On the other hand, the corrective arm seeks to establish the framework for the affected economies with higher debts and excessive deficit to correct their economies. The policies enacted by the European Union have had significant impact on the performance of the member economies because they have results in the changes of structural performance and adjustments with the aim of increasing their growth prospective.

            The economy of Greece is one of the leading economies in the European Union that has experienced the adverse effects of debt crisis. The debt crisis that adversely affected the functionality of the Greece economy has been attributed to have been caused by the structural weaknesses in the Greek economy and this coupled with the elements of incomplete tax policies, banking unification with other European countries and the usage of the euro as a universal currency for the European nation (Coricelli & Valerio, 2002, DeGrauwe, 2000, Deroose, Servaas, Sven Langedijk & Werner, 2004). The collapse of the financial institution in the Greek economy was an indication to the other European players about the emergence of financial crisis and corrective measures had to be initiated. Over the period, the roles of the European Union had been to ensure economic prosperity of the member states and this is done by ensuring that the disparities in the economies are eliminated. This is achieved through the use of factors like debts and debt crisis.

Debt and debt crisis

            National debts have been described as the debts owed by central governments and it represents one aspect of government funding (Feldstein, 2003). The EU has identified this aspect as the medium term budgetary objective and it is defined in structural terms. The member states of the EU are required to submit their medium-term budgetary plans in stability and convergence programs and these are submitted for assessment towards enhancement of fiscal sustainability of the European Union members.

            On the other hand, debt crisis is used to refer to the aspect of proliferation of huge debts relative to the revenues derived from taxation. Debt crisis is significant increasing capacity of the government to default in the payment of its debts. The European Union has developed a step by step guide towards restoration of debt crisis through the development of the corrective arm of the EU stability pact (European Commission, 2012).

            Greek debt crisis

            Over the period, the Greek economy has continued to suffer because of the attributes of debt crisis and this has adversely affected the entire European Union because Greek is one of the 27 members of the union. In this regard, the combination of the EU have implemented corrective measure in the Greek economy and these includes the provision of emergence funds to restore financial performance through offset of debts and the enhancement of the call to implement austerity measures. Austerity measures are highlighted by the European Monetary Unification Stability Pact as the crucial aspect of restoring economic performance when the economy is faced with adverse measures (Jonung, Lars & Martin, 2004, Kenen, 2000, European Commission, 2012). The EU stated that austerity measures would raise competitiveness and global participation. In addition, the EU also advocated for the raise in revenue through the implementation of strong taxation policies and these measures proved beneficial for the Greece economy resulting in growth. In view of the above provisions, it is evident that the factor so the European Union had significant contribution towards the restoration of the performance of the Greek economy and this was achieve through the implementation of the European Monetary Unification Stability Pact.

Part two

            The establishment of economic stability of the member states is one of the objectives of the European Union. In a bid to enhance performance of the European Union economies, the union has established the European Monetary Unification Stability Pact which has stipulation of providing steps towards the restoration of the poorly performing economies. Certainly, the usage of this criterion has been of immense benefits to the Greece economy because it has enhanced its performance and development. The implementation of this has been achieved through the establishment of various strategies and incentives. One of the strategies highlighted in the pact is the offering of financial assistance and this is done in various phases. In this regard, the establishment of the fourth funding incentive in the economy of Greece was with the consideration of various incentives. The restoration of sharp deterioration of the financial performance of Greece economy was one of the objectives that prompted the fourth finding program. Restoration of fiscal sustainability in Europe is an ideal incentive that is crucial for development and it has the consideration of enhancing development (Rose, Andrew, 2000). Another objective that prompted the proponent of forth funding program was the need to implement structural reforms in the economy. Implementation of structural reforms is a beneficial incentive because it has the attribute of improving the competitiveness of the economy thereby leading to the increased global participation (Stark, Juergen, 2001). Global participation is extremely beneficial for the national economy because it enhances globalization and sustainability in economic growth.

            Over the period, the European Union has been on the fore front in ensuring that the establishment of the member economies is significantly enhanced and this has been achieved through the provision of both structural assistance and financial assistance. Analysis conducted on the Greece economy has revealed that the European Union initiated series of funding program and the consideration of the forth funding program is the latest scheme of financial assistance accorded to the economy (Wyplosz, 2005). In view of this, the elements of fourth funding program shows the approval of the financial assistance of the Greece economy by the euro area minister. Results have shown that the IMF and the euro area member states committed to the provision of Greek loan facility and an additional €130 billion to aid the development of the Greece economy (Stark, Juergen, 2001, European Commission, 2012). During the release of these funding to the Greece economy, the attributes of evaluation will be based on the observation of quantitative performance criteria and the positive evaluation of the progress made in the economy. The disbursement of the economic development funds were conducted on different periods as shown in the table below.

Disbursement	Date	EFSF	IMF	Total
1	March – June 2012*	74	1.6	75.6
2.1	December 2012**	34.3	-	34.3
2.2	January 2013***	7.2	-	7.2
2.3	Jan-13	2	3.24	5.24
2.4	Feb-13	2.8	-	2.8

             The economy has continued to receive immense funding initiative from the European Union this has resulted in the rejuvenation of the economy as shown by the increase in the aspects of growth. The funding to the economy has resulted in the development of structural programs and the strengthening of the tax provisions in the economy. This has the impact of generating jobs to the economy and increasing their national income. It is projected that the economy will generate a more than 147,000 jobs for their citizens over the seven year period (Thom, 2003, von Hagen, 2008). Other evidence from the economy has depicted reduction in the countries debt a margin of 3.8 to 5.5% and this is extremely beneficial as it highlights development of the structural programs and implementation of developmental polices (McDonald, Frank and Dearden, Stephen, 2012). Finally, the implementation of the forth founding incentives has been of immense benefits to the economy because both objectives of the fourth funding have been realized in the economy and mild economic growth restoration has been enhanced.

References

Artis, M.J. and B. Winkler (2009): “The Stability Pact: Safeguarding the credibility of the European Central Bank,” Centre for Economic Policy Research, London,

Collignon, Stefan (2003): “Is Europe going far enough? Reflections on the Stability and Growth Pact, the Lisbon strategy and the EU’s economic governance”, in: European Political Economy Review 1 (2).

Coricelli, Fabrizio and Valerio Ercolani (2002): “Cyclical and Structural Deficits on the Road to Accession: Fiscal Rules for an Enlarged European Union”, in: CEPR Discussion Papers No. 3672.

DeGrauwe, Paul (2000): Economics of Monetary Union. Oxford: Oxford University Press.

Deroose, Servaas, Sven Langedijk and Werner Roeger (2004): “Reviewing adjustment dynamics in EMU: from overheating to overcooling”, in: EU Economic Papers No. 198 (January 2004). Eichengreen, Barry (2004): “Institutions for Fiscal Stability”, in: CESifo Economic Studies 50 (1), pp. 1-25.

European Commission (2004) “Cyclical Convergence in the Euro Area: Recent Developments and Policy Implications”, Quarterly Report on the Euro Area3(2): 27-38.

Feldstein, M. (2003): “The political economy of the European Economic and Monetary Union: Political sources of an economic liability,” Journal of Economic Perspectives

Jonung, Lars and Martin Larch (2004) “Improving Fiscal Policy in the EU: The Case for Independent Forecasts,” Economic Paper No. 210, European Commission.

Kenen, Peter (2000) Economic and Monetary Union in Europe, Cambridge University

McDonald, Frank and Dearden, Stephen. European Economic Integration, Prentice Hall, ISBN: 0273679082, the latest edition.

Rose, Andrew K. (2000) “One Money, One Market: The Effect of Common Currencies on Trade”, Economic Policy30.

Stark, Juergen (2001) “Genesis of a Pact”, in: A. Brunila, M. Buti and D. Franco (eds.), The Stability and Growth Pact, Palgrave: 77-105.

Thom, D.R. (2003): “Economic and monetary union,” Centre for Economic Research,

University College Dublin, Working Paper 97/3, January.

von Hagen, Juergen (2008) “Currency Union and Fiscal Union: A Perspective From Fiscal Federalism”, in: P. Masson and M. Taylor (eds.) Policy Issues in the Operation of CurrencyUnions, Cambridge University Press.

Wyplosz, Charles (2005) “Fiscal Policy: Institutions Versus Rules”, National Institute Economic Review91: 70-84.