Economic and Monetary Union (EMU) and Crisis Management

A set of practice flashcards covering the Economic and Monetary Union, fiscal rules (SGP, Six-Pack, Two-Pack), crisis management tools (ESM, EFSF), significant CJEU case law, and the response to the COVID-19 pandemic.

What was the primary goal of the 1957 Treaty of Rome?

To create a customs union and a common market based on the free movement of goods, services, people, and capital.

What targets were concluded in the 1970 Werner Report for achieving economic and monetary union?

Total and irreversible convertibility of currencies, elimination of margins of fluctuation in exchange rates, and the irrevocable fixing of parity rates in three stages.

What was the "snake in the tunnel" (1972)?

A system limiting the margin of fluctuation for European currencies to $2.25\%$ against the US dollar (the tunnel) and each other.

What did the 1977 MacDougall Report argue was a prerequisite for a monetary union?

A federal budget at the European level to transfer resources and stabilise economies facing economic shocks.

Define the European Currency Unit (ECU) in the context of the European Monetary System (EMS).

An accounting unit calculated based on the weighted average of the currencies participating in the EMS.

What are the three stages of achieving economic and monetary union proposed in the 1989 Delors Report?

Stage 1 ($1990\times 1994$): Completion of the internal market; Stage 2 ($1994\times 1999$): Setting up the independent European Central Bank; Stage 3 (from $1999$): Irrevocable locking of exchange rates and introduction of a single currency.

What are the two reference values for fiscal discipline defined in Protocol No. 12 of the Maastricht Treaty?

A ratio of government deficit to $GDP$ at market prices of $3\%$ and a ratio of government debt to $GDP$ of $60\%$.

What are the three guiding principles of the EMU framework established by the Maastricht Treaty?

Maintaining price stability, ensuring sound public finances, and maintaining a sustainable balance of payments.

What is the primary difference between the "preventive arm" and the "corrective arm" of the Stability and Growth Pact (SGP)?

The preventive arm (Reg. $1466/97$) monitors budget plans to catch problems early, while the corrective arm (Reg. $1467/97$) triggers the Excessive Deficit Procedure ($EDP$) when a deficit exceeds $3\%$ of $GDP$.

What is Reverse Qualified Majority Voting (RQMV)?

A voting mechanism where a Commission recommendation is automatically adopted unless the Council rejects it by a qualified majority within $10$ days.

According to the Six-Pack (2011), what is the 1/20th rule for the debt criterion?

Government debt above $60\%$ of $GDP$ must decrease at an average rate of $1/20\text{th}$ (or $5\%$) per year of the gap with the target value.

What is the purpose of the European Semester?

An annual cycle during which the EU reviews and coordinates Member States' economic and fiscal policies before national budgets are voted on by national parliaments.

What are the four pillars of Economic Union identified in the Delors Report?

A. Internal Market, B. Competition Policy, C. Common Policies (Structural funds), and D. Macroeconomic policy coordination (binding budgetary rules).

What was the core outcome of the 2004 CJEU judgment regarding France and Germany?

The Court annulled the Council's conclusions that suspended the Excessive Deficit Procedures against France and Germany, ruling that the Council had violated the Treaty's procedural requirements.

Define "Structural Budget Balance" as introduced by the 2005 SGP reform.

A budget balance net of one-off and temporary measures and cyclically adjusted based on the output gap.

What is the "Golden Rule" in the Fiscal Compact (TSCG)?

The requirement that the annual structural balance must be at or above the country-specific Medium-Term budgetary Objective ($MTO$), with a structural deficit limit of $0.5\%$ of $GDP$.

What legal basis was used to establish the European Financial Stabilisation Mechanism (EFSM) in 2010?

Article $122(2)$ TFEU, which allows assistance due to exceptional occurrences beyond a Member State's control.

How is the European Financial Stability Facility (EFSF) structured compared to the ESM?

The EFSF is an intergovernmental special purpose vehicle (company) in Luxembourg, while the European Stability Mechanism ($ESM$) is a permanent international institution established by treaty with paid-in capital.

What was the primary legal question in the 2012 Pringle case?

Whether the establishing of the ESM was compatible with the EU's exclusive competence in monetary policy and the "no-bailout" clause (Article $125$ TFEU).

Define "Conditionality" in the context of EU financial assistance.

The requirement that receiving a loan is conditional on implementing specific economic policies and structural reforms agreed upon in a Memorandum of Understanding ($MoU$).

What is the "time-consistency" problem relevant to ECB independence?

The risk that a policy-maker promises low inflation today but has an incentive tomorrow to print money to finance public spending.

In the Gauweiler case (2015), why did the CJEU rule that the OMT programme belonged to monetary policy?

The programme's objective was to safeguard price stability by repairing the broken monetary policy transmission mechanism using open market operations ($Art.\,18.1\text{ ECB Statute}$).

What was the significance of the 2020 Weiss judgment by the German Federal Constitutional Court?

The German court declared the ECB's Quantitative Easing ($PSPP$) and the CJEU's earlier ruling "ultra vires," alleging failure to adequately assess the principle of proportionality.

What is the "doom loop" or "bank-sovereign nexus"?

A vicious circle where weak banks require government bailouts, which increases sovereign debt, subsequently lowering the value of sovereign bonds held by those same banks.

Identify the unique feature of the first Greek bailout (2010).

It was funded via $€80\text{ billion}$ in bilateral loans from euro area states and $€30\text{ billion}$ from the $IMF$, rather than an established EU fund.

What is "Private Sector Involvement" (PSI) in the context of Greece (2012)?

A voluntary agreement where private bondholders accepted a $50\%$ "haircut" on the face value of Greek bonds to reduce the country's debt ratio.

Define "Safe Assets" in the euro area.

Financial instruments, such as Sovereign Bond-Backed Securities ($SBBS$), intended to provide low credit risk and high liquidity without requiring shared liability between Member States.

What is the purpose of the Pandemic Emergency Purchase Programme (PEPP)?

A quantitative easing programme with a final envelope of $€1.85\text{ trillion}$ aimed at countering risks to the monetary policy transmission mechanism caused by Covid-19.

What does the SURE instrument (2020) provide?

Loans totaling up to $€100\text{ billion}$ to Member States to finance short-time work schemes and preserve employment during the pandemic.

What are the two components of the Next Generation EU (NGEU) recovery package?

A total of $€750\text{ billion}$ divided into $€390\text{ billion}$ in grants and $€360\text{ billion}$ in loans.

Under the revised ESM Treaty, what is the PCCL (Precautionary Conditioned Credit Line)?

A credit line for countries with fundamentally strong economic situations that meet specific track records for deficit, structural balance, and debt, requiring no $MoU$.

What is the "General Escape Clause" of the Stability and Growth Pact?

A safety valve activated during a severe economic downturn for the euro area or the Union as a whole that allows for temporary departure from normal fiscal trajectories.