Essay on Fiscal Policy

The integration of Europe has created a new government that could be labeled as intergovernmental, or supranational. Most would agree that in reality, it is a delicate balance of the two. However, you can identify specific policies within the EU as more intergovernmental or supranational. EU social policy leans more towards the intergovernmental, and EU monetary policy would be largely considered supernatural. European Union social policy would be considered more intergovernmental mostly by lack of concrete policy (Issing, 2001).

The liberalization of trade is a historical phenomenon, which goes back a long way. Never before has any regional grouping made up of sovereign countries succeeded in taking economic integration as far as the European Union has done. Customs duties between European countries started to come down steadily in the early 1950s and disappeared entirely in 1968 with the introduction of a customs union and the implementation of the common external tariff. The official proclamation of the single market on 1 January 1993 marked the ending of non-tariff barriers to trade between Member States. European Monetary Union will make it possible to complete European economic integration. The disappearance of the national currencies will mean that the prices of goods can be directly compared on the markets of the participating Member States, which will merge into one. The transaction costs and the exchange risk, which are obstacles to trade will be eliminated. The competitive positions of companies can no longer be established by exchange-rate movements but will reflect productivity, inflation and cost differentials. This should permit a better allocation of capital and of available resources (Begg, Canova, Fatas, Lane, 2002).

The change of the European currencies with the euro should have low effect on inflation or the inflation may even go down because of the competition..........

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