Question

PART B (35%) Answer one of the following questions. Use diagrams where appropriate in your answer. 1. Outline the advantages of membership of the EU's customs union and of the single market and use your discussion to explain why most economists believe that a 'hard Brexit would affect the UK economy negatively. Do you agree with this view? Outline the causes of the Euro crisis. Detail the provisions of the Fiscal Stability Treaty and discuss whether this treaty will succeed in preventing a recurrence of the crisis. 2.

Answer 1

Euro Crisis:

Unlike Poland many European countries had not embraced market based economic policies, opening their market to international trade and foreign investment, and privatized many state owned businesses.

The main effect of Euro debt crisis event is a rise in global risk aversion accompanied by fall in equity returns, in particular in the financial sector, in advanced countries. Membership in the eurozone established a single monetary policy, preventing individual member states from acting independently.

In particular they cannot create euros in order to pay creditors and eliminate their risk of default. Since they share same currency as their trading partners, they cannot devalue their currency to make their export cheaper.