Joblessness will rise because interest and exchange rates will no longer automatically counter cyclical unemployment. Today, for example, if a recession in Latin America causes Spanish exports to decline, the peseta weakens and Spanish interest rates fall. That causes Spain’s other exports to rise and domestic interest-sensitive spending to increase. The net effect is a smaller rise in unemployment. But once the peseta is replaced by the euro, Spain cannot be helped by a currency adjustment or by a fall in interest rates (since these must be uniform throughout the monetary Union). EMU membership would also deny Spain the option of easing monetary policy to stimulate growth and employment. And, because of the misnamed stability pact, the Spanish government will not be able to cut taxes or raise spending to offset a fall in demand.
Some Europeans reject such pessimism, citing the example of the U.S., which avoids persistent high regional unemployment despite its single currency and single central bank. Unfortunately, three basic differences between the U.S. and Europe mean that America’s success with a single currency is not relevant to Europe.
First, Americans are very mobile - moving from high unemployment regions to places where there are jobs. In Europe, linguistic barriers prevent similar mobility. Second, U.S. wages are much more flexible. Wages fall in regions where demand declines, offsetting increases in production employment. And, finally, when income declines, individual and business taxes paid to the federal government decline sharply, implying a strong net transfer to that region. For these reasons, unemployment rates are far less sensitive to U.S. regional demand fluctuations than they would be in a single-currency Europe.
Europe’s current double-digit unemployment rates are not cyclical but are caused by bad structural policies - misguided regulations, high minimum wages, and generous unemployment benefits. A few countries have made progress by changing these counterproductive rules. Their experience shows what can be done and provides competitive pressures to force reform elsewhere. But the increased centralization of policy that accompanies EMU will make it harder for individual countries to experiment with reforms. The European Commission’s recent pronouncement that it will force countries to respect maximum working hours is an indication of things to come.
Inflation in Europe has fallen sharply during the past decade as individual central banks emulated Germany’s fiercely anti-inflationary Bundesbank. Although other countries do not share the Germans’ fervid opposition to inflation, they have been forced to follow Germany’s lead to avoid devaluing their currencies. This monetary discipline will end when EMU gives every country an equal vote at the European Central Bank. Without Germany’s leadership, European inflation will be higher in the next decades than it has been in recent years.
These adverse effects on unemployment and inflation far outweigh the commercial benefits that will flow from EMU. the elimination of tariffs and other barriers by the 1992 Single Market agreement was far more important for stimulating trade and investment.
Despite these shortcomings, EMU looks likely to begin on schedule because economic issues are secondary to political aspirations. For Germany and France EMU offers the possibility of dominating European policy-making. Countries like Italy and Spain will join to show that they are economically and politically worthy of membership. And the smaller countries are joining to have a seat at the table where European policies are determined. The Maastricht Treaty that created the EMU calls for a European political union with broad domestic and international responsibilities. Moreover, since no significant country exists - or has ever existed - without its own currency, the shift to a single currency for the EMU members is a giant step toward such a European state.
Ever since the end of World War II a single European government has been advocated as a way of keeping the peace. But a European political union is more likely to be a source of conflict than a foundation for European harmony. There will be quarrels over monetary policy, over taxation, and over the shaping of common foreign policies. There will be disputes between Germany and France about their relative power and influence. There will be conflicts that flow from the frustrations of other E.U. countries - including Britain if it decides to enter - when they find that they are marginalized in the decision process. A European political union with 300 million people and the ability to project military force around the world could be the source of broader international instability in the decades ahead.
VOCABULARY
| 1. joblessness | безработица |
| 2. cyclical unemployment | циклическая безработица |
| 3. interest-sensitive | зависящий от (подверженный воздействию изменений) уровня ссудного процента |
| 4. currency adjustment | корректировка валютного курса |
| 5. an equal vote | равное число голосов |
| 6. the European Central Bank | Европейский центральный банк |
| 7. to be marginalized | зд. остаться в стороне от |
| 8. EMU | Economic and monetary Fund |
2. Напишите аннотацию данного текста.
Text C.
1. Прочитайте и переведите следующий текст.
WHY NON-EUROPEANS SHOULD CARE ABOUT EMU.
If you live in Europe, economic and monetary union is an impossible subject to avoid. Debates about its timing, membership and prospects make headlines almost daily. Yet outside Europe EMU is scarcely mentioned. That is a pity. For EMU, if and when it goes ahead, will have global economic implications.
The creation of the euro will be the biggest change in the world’s monetary arrangements since the Bretton Woods system of fixed exchange rates broke down in the early 1970s. How EMU will affect the rest of the world depends largely on two related questions. First, will the euro challenge the American dollar as the world’s main reserve currency? And second, is EMU likely to make the global monetary system more or less stable?
Most economists and policymakers agree that the euro, if backed by a credible monetary policy, will eventually play a more important global role than its constituent European currencies do today. Central banks will want to hold some of their reserves in euros, and financial markets will conduct more transactions in the new currency. Both changes will occur mainly at the expense of the dollar. But pundits disagree about how fast they will happen, and whether the euro will ever topple the dollar.
Fred Bergsten, director of the Institute for International Economics, a Washington think-tank, says that at a minimum the euro will quickly become the world’s second key currency. The reason, he says, is that the principal influences on a currency’s potential as an international currency are the relative size of the underlying economy and that economy’s share of global trade. On both counts, EMU’s likely members score well.
The European Union accounts for just over 30% of world output, slightly more than America’s 27%. Even when intra-European trade flows are excluded, the EU exports more than the United States. The “core” European countries that are most likely to join EMU at the outset account for a slightly bigger share of global trade than America. All this suggests that the euro should become an important international currency.
However, other arguments point strongly in the dollar’s favour. Part of the dollar’s international attraction is the size, depth and liquidity of America’s capital markets. America’s market for domestic securities, for instance, is twice as large as the combined markets of EU countries. Even with rapidly increasing European financial integration, America’s supremacy in capital markets is unlikely to be challenged. The dollar is also the incumbent: investors’ inertia may slow change.
Even so, economists expect that between зо% and 40% of global financial assets will end up denominated in euros (with between 40% and 50% in dollars, and the rest in yen and a few other currencies). This would imply a shift of between $500 billion and $1 trillion into euros, primarily out of dollars, as investors and central banks reshuffled their portfolios.
How much currency instability such a portfolio shift may cause depends on how quickly it takes place.A sudden surge in demand for the euro would cause it to appreciate rapidly. George Alogoskoufis, an economist at the Athens School of Economics, and Richard Portes, of the London Business School, argue that shifts in portfolios could push the euro temporarily above its long-run equilibrium level. Eventually this “overshooting” would be corrected as the EU’s current-account deficit widened, real interest rates fell and the euro depreciated.
Policy decisions within Europe could make the euro more volatile still. Mr Bergsten believes that EMU governments, having given up monetary policy, might pursue an expansionary fiscal policy - in spite of their “stability pact”, which is intended to prevent such laxity. Meanwhile the European Central Bank will be determined to establish its credibility with a tight monetary policy. The combination of the two, he argues, could mirror the impact of Reaganomics on the dollar in the early 1980s. The euro would soar. Its global role would increase as assets were shifted into euros, but global exchange-rate volatility would rise.
It is true that other factors may dampen the effect of the shift into euros. For instance, much of the demand for euros would come from central banks adjusting their reserves. To avoid exchange-rate instability, central bankers might do this gradually. Nonetheless, some temporary rise in volatility is probable.
Monetary union might even make currencies more volatile permanently. Because trade among EMU members will be transacted in a common currency, and “international” trade will be smaller, European policymakers might pay less attention to exchange rates than they now do. More instability might result.
One popular idea for minimising such instability is a more formal system of currency co-operation between the world’s major economies. The problem, however, is that policymakers may not want to make their domestic monetary policies subject to formal exchange-rate targets for the sake of global currency-market stability. For instance, having tied their national currencies together for all time, Europeans may not want to fix the euro against the dollar and the yen.
An additional concern within Europe will be the uncertainty of who should cooperate. At its start, EMU will not include all EU members. The relationship between the “ins” and “outs” will affect the potential for broader co-ordination, as well as currency stability within Europe.
Moreover, the technicalities of policy co-operation will not be simple. The European Central Bank will control monetary policy; EMU’s finance ministers will have a say on exchange-rate policy; and fiscal policy will (within limits) stay in the hands of individual European governments. Policy coordination, at least initially, will be far from straightforward. That alone may make the international monetary system less stable.
VOCABULARY
| 1. reserve currency | резервная валюта |
| 2. think-tank | «мозговой трест» (группа экспертов, приглашенная для решения определенных задач) |
| 3. domestic securities | национальные ценные бумаги |
| 4. portfolio | портфель инвестиций |
| 5. equilibrium level | уровень равновесия |
| 6. «overshooting» | зд. нарушение равновесия; расхождение с уровнем равновесия |
| 7. current-account deficit | дефицит платежного баланса по текущим операциям |
| 8. volatile | неустойчивый |
| 9. Reaganomics | «Рейгономика» - экономическая политика во времена президента Рейгана «экономика предложения» |
| 10. monetary policy | денежно-кредитная политика |
2. Напишите реферат и аннотацию данного текста.
«Europe. Economic and Monetary Union».
Topics for discussion
1. The EU: benefits of the single market and the single currency.
2. Four convergence criteria as means of bringing the European economies closer together.
3. Full economic and monetary union spells the end of a country’s right to determine its own economic policy.
4. The single currency may lead to regional conflict, not economic efficiency.
5. The creation of the euro will be the biggest change, in the world’s monetary arrangements.
UNIT V. Inflation.
1. Дайте ответы на следующие 1. What is the effect of inflation
вопросы без предварительного on economic growth ?
чтения текста: 2. Do to-day’s low rates of inflation
in major economies defy pessimistic
forecasts of the recent years ?
2. Дайте ответы на следующие 1. What is the harmful cost of
вопросы после беглого просмотра inflation ?
текста: 2. Why has inflation proved so
benign in many countries ?
3. Is inflation burying premature ?
3. Прочитайте следующий текст и найдите ключевые слова и предложения:
MURDER, THEY WROTE.
Economists have spent a lot of effort trying to measure the effect of inflation on economic growth. Many governments would be grateful for clear evidence that it slows growth a lot: this would make it easier for them to justify the usually painful policies that are needed to bring inflation down. But the evidence, such as it is, is none too clear.
Theory points confidently to the view that inflation (especially the unanticipated kind)hampers growth. It inevitably causes uncertainty about future prices; this in turn will affect decisions about spending, saving and investment, causing resources to be misallocated. Inflation has other costs too. It may cause substantial redistributions of income and wealth - notably from savers to borrowers. And if it discourages saving in this way too, then investment and growth are likely to suffer all the more.
However over the past few years inflation has turned out lower than most observers expected. The average inflation rate, of 2.2%, in the seven biggest industrial economies is at its lowest level for 30 years. Most people alive today have been brought up to believe that it is normal for prices to rise every year. Yet countries have experienced continuous inflation only since the end of the second world war ; before then, prices rose in some years, but fell in others, leaving the average price level unchanged over long periods. Economists reckon that we are about to return to such a world.
The prediction is based on powerful structural changes in the world economy. Labour-saving technology, weaker trade unions, and stronger competition at home (thanks to privatisation and deregulation) and abroad (imports from low-wage economies) have made it harder for workers to push up wages and for firms to raise prices.