Chapter 6 Essay questions

The transition to a monetary union
  1. Can you give a good justification of why countries should lower their government debt levels prior to entry into the monetary union?
  2. Discuss: ‘The Maastricht convergence criteria have nothing to do with the economic criteria stressed by the OCA theory. They are political in nature.’
  3. What is the ‘no bailout’ clause in the Maastricht Treaty? Is this clause likely to be credible?
  4. Why is the Maastricht interest rate convergence requirement superfluous?
  5. Where do the 3% budget deficit criterion and the 60% debt level criterion come from?
  6. The nominal growth rate of GDP in Eurozone has declined to 3%. Assume that this is the new steady-state level of the nominal growth rate in Eurozone. What does this imply for the government budget deficits if one wants to stabilize the debt levels at 60% of GDP?
  7. Some Southern Eurozone countries and Ireland experienced higher nominal growth rates of their GDP than the average Eurozone countries from 1999 to 2007. What did this imply for their debt to GDP ratios (as compared to the debt to GDP ratios of the average Eurozone country) if they adhered to the budget deficit criterion?
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