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TAEMUN

EUROPEAN UNION

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Handbook

Chairwoman Marianna Olivia Loredo Celaya

Moderator Miguel Ángel Cortés Rodríguez

Conference Officer José Miguel Torres García

Escuela Tomás Alva Edison


“We’re in a survival crisis. We all have to work together in order to survive with the euro zone, because if we don’t survive with the euro zone we will not survive with the European Union.” Herman Van Rompuy, European Union President Dear Delegates, Please be welcomed to this 10th edition of TAEMUN 2013 on this, your committee European Union (EU). It is the Chair’s hope that during the sessions of this committee, you will debate one of the issues that is extremely relevant to the international agenda: the European Sovereign Debt Crisis. You are expected to exchange ideas and proposals in order to control, reduce, and revert the effects of this crisis, not only at an economic level but also at the social one. The topics you will be discussing during the following three days are: a new plan creation to develop a more suitable fiscal policy and illegal migration to Europe as one of the main factors of the economic crisis. The first one refers to the controversy about whether a fiscal union is the option to save the EU or not; and the second one appeals to an issue that has remote origins and an important role in the economical downturn of the EU. Finally, we would like to express our gratitude to you for participating in this important edition of TAEMUN, and we hope that the following days will be satisfactory and enjoyable.

European Union TAEMUN 2013

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What is the EU? The European Union (EU) is a political and economic multilateral alliance of 27 European nations created to take important decisions for the benefit of their countries. The first idea of organizing a community of this nature was born after World War II, idea which was materialized in 1958 with the creation of the European Economic Community (EEC). It started with 6 member States to fulfill the ideal of becoming an economic entity; nevertheless, with time it started gaining control in other aspects and following different policies becoming the European Union in 1993. The main goals of this Union are the promotion of human rights, equality, democracy, dignity, freedom and respect to the rule of law. The promotion of a standardized economy that satisfies the needs of the European population and its welfare are also important objectives.

A. A new plan’s creation to develop a more suitable fiscal policy What is worldwide known as The European Sovereign Debt Crisis has become one of the main issues in most of the nations of the world; it is a phenomenon which was provoked mainly because of the importance of the European market in the international community. The magnitude of this crisis has reached alarming proportions which certainly have occasioned an upset in the stock exchanges of the world’s largest economies. One of the main reasons of this debt crisis is the colossal differences of the economies of its members, especially when it comes to fiscal policies. In the euro zone there are countries like Greece with incredibly high taxes which only contribute to this increasing debt. On the other hand, there are some countries (like Germany) where taxes are rather low and more than enough to satisfy their population’s needs. At the beginning, Greece was the only nation who seemed to have severe financial issues, but nowadays this problem has spread throughout the continent and has reached alarming rates of economical breakdown in nations such as Ireland, Spain, and Italy. The problem relies both on the lack of a political figure, who controls the income of his/her country within the European Union, and on the incapability of the European Central Bank (which is supposed to be the last instance moneylender in the euro zone) to back up the European nations with financial problems.

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There are measures to prevent economical crisis that have been already taken in the past, such as the Stability and Growth Pact (SGP) which: (…) was engineered to safeguard against a debt crisis by ensuring that all member states maintain a standard budgetary discipline, it mandates (…) Eurozone states not exceed an annual budget deficit of 3% of the nation’s GDP or a gross debt of 60% of the nation’s GDP. (“Reconstructing the Tower of Babel: Union Fiscal Policy”, 2012, paragraph 4) Nevertheless, these measures along with other sanction clauses have not been completely followed by some members of the EU; this is the reason why instability started to spread even to countries that did not violate these parameters. Since the outbreak of the economic crisis in 2008, the European governments have looked for programs and new measures that may help the most affected members and create a stable economic growth; one of the measures was the implementation of austerity plan, principally in Greece to reduce the public debts; nevertheless, there have been strong discussions on whether increasing this austerity or not is a reliable solution. Greece argues that it is not possible for the nation to cut more expenses without affecting deeply the welfare of the Greek population. In the same way, the Greek government states that the only way to improve their economy is having more time to comply with the results austerity had promised. Another fact is that the European Central Bank is located in Frankfurt; therefore this bank is managed mainly by the German administration; so the rest of the EU nations are expected to manage their incomes as Germany does. However, there are countries such as Greece or Ireland which certainly do not have the same administration system, fact that may be reflected on their enormous rates of unemployment. This is what makes the economical differences even bigger among the European nations, members of the euro zone. Although many negotiations had taken place, there had not been a clear answer until the G20 Mexico Summit held in June 2012, where the decisions about this issue took a new and decisive turn. During this summit, the leaders of the participant nations agreed on the importance of eradicating this problem as soon as possible, and to this purpose they decided to recapitalize the International Monetary Fund (IMF) with a sum of 456,000 millions, among other proposals such as the creation and strengthen of new commercial alliances.

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Later on, during September 2012, a new European Union agency entered into force and was ratified by all the 17-euro area Member States: the European Stability Mechanism (ESM). The ESM main goal is helping the European economies by giving financial and economic support directly to the States’ governments; it will work in parallel with the European Financial Stability Facility (EFSF) for a time and eventually replace it to become a centralized financial-aid agency based in Luxemburg. The ESM is strongly funded by European Union States such as Germany (27%), France (20%) and Italy (18%) while the United Kingdom did not contribute with anything. This will be globally the largest international financial institution with a capital base of €700 billion from which €80 billion will be paid starting 2014, having a €620 billion as a callable capital. This results in a lending capacity of €500 billion. The ESM will be able to buy debts from the financial markets of the members; it will also have the capability to lend money to banks (recapitalization) with the strict supervision of the European Central Bank. However, Member States are aware that recapitalizing is not the lifesaver to affected economies, since the estimated amount of capital needed to overcome the crisis for Spain and Italy is €620 billion, more than the lending capacity of the ESM. This means that the ESM will not be able to provide countries with unlimited economic help or financial assessment, which constitutes the reason why the EU Presidents and Prime Ministers have urged the creation of long-term policies to complement the measures already taken. It was during the EU summit, held in June of 2012, when President Angela Merkel urged the importance of having a banking union which should be supervised by one entity: the European Central Bank. This, intended to be implemented in January 2013, will give the ECB the “power to monitor the performance of the 6,000 or so Banks in the euro zone” (European Commission, 2012, paragraph 4), and with it, it will be able to control the movements of the banks in the region, ensuring that there is enough capital to stabilize the economy. The ECB will also have the authority to request the bank to take the necessary measures to recover the stability. This new proposal is known as Single Supervisory Mechanism (SSM), which is the largest political union creation in Europe after the European Economic Community. Once it starts with its activities, this mechanism will be functioning with other measures such as the ESM in order to

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recapitalize countries in debt, such as Spain; thus it will work having as ultimate goal recovering the euro’s position within the global market. These last two proposals (the ESM and the SSM) are considered a first attempt to the development of a possible fiscal union that will enable a new standardization of taxes. There is still a lot of controversy, since some countries argue that they cannot decrease their taxes anymore without affecting deeply their economy and social welfare, which is why a formal proposal for a fiscal union has not been announced yet. To conclude, if the idea of the euro as monetary union wants to remain, the EU countries should reach a consensus that must include the interests of all the members, always taking into consideration the capacities or context of each one of the State Members; any solution or proposal given on the matter should meet this goal.

Guide Questions Is your country a European Union Member or a candidate? How does this position affect the country’s decision-making role in the region? How affected and in what aspects has the crisis distorted your country? What measures has your country taken with the EU crisis problem? Is your country for or against the banking union? What is your country’s position towards the idea of a common fiscal policy in the EU? Following the economic crisis pattern, what are the possible scenarios for the European Union as a monetary union? How can this be prevented?

References Aranda, L. (28/02/12): “México y el G20”, Las Relaciones Internacionales de México, Instituto Matías Romero/ Secretaría de Relaciones Exteriores. Retrieved 5/07/12 http://imrapreso.sre. gob.mx/acmcontent/810f8635-6623-40fb-bb1d-e2c57e422479/ Programaderadio_G070212_2012-02-28_11-51-a.m._files/media.mp3

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BBC (2012): “G20 summit: US ‘encouraged’ by euro zone plans”, BBC News Business. Retrieved 21/06/12 http://www.bbc.co.uk/news/ business-18515981 BBC (2012): “EU summit innovations explained”, BBC News Business. Retrieved 04/07/12 from http://www.bbc.co.uk/news/ business-18640348 CNC (2012): “EU ‘fiscal union’”, CNC WORLD. Retrieved 18/06/12 http://www.cncworld.tv/news/v_show/24936_EU__fiscal_union_.html Delegation of European Union to the USA (2011): “European Union response to economic and financial crisis”, European Union External Action. Retrieved 15/06/12 http://www.eurunion.org/eu/Hot-Topics/ EUROPEAN-UNION-RES PONSE-TO-THE-ECONOMIC-AND-FINANCIALCRISIS.html European Commission (2012): “Commission lays ground for banking union”, European Commission News. Retrieved 13/11/12 http:// ec.europa.eu/news /eu_explained/120917_en.htm European Commission (2012): “Communication from the Commission to the European Parliament and the Council”, European Commission News (pdf). Retrieved 13/11/12 http://ec.europa.eu/internal_market/ finances/docs/ committees/reform/20120912-com-2012-510_en.pdf European Commission (2012): “European Stability Mechanism (ESM)”, Economic and Financial Affairs. Retrieved 15/11/12 http:// ec.europa.eu/economy_finance/european_stabilisation_actions/esm/ index_en.htm. EU Council (2012): “The European Stability Mechanism (ESM) Inaugurated”, Council of the European Union. Retrieved 15/11/12 from http://www.consilium.europa.eu/homepage/highlights/theeuropean-stability-mechanism-(esm)-inaugurated?lang=en. European Union (2012): “Basic Information on the European Union”, European Union. Retrieved 14/11/12 http://europa.eu/about-eu/basicinformation /index_en.htm Inman, P. (2012): “Eurobonds: an essential guide”, The Guardian. Retrieved 17/11/12 http://www.guardian.co.uk/business/2012/may/24/ eurobonds-an-essential-guide Johnson, C., Kuehne, T. (2012): “Reconstructing the Tower of Babel: Union Fiscal Policy”, Yale Undergraduate Law Review. Retrieved 20/06/12 from http://yulr.org/reconstructing-the-tower-of-babeleuropean-union-fiscal-policy/

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Kenny, T. (2012): “What is the European Debt Crisis?”, About. com. Retrieved 10/06/12 from http://bonds.about.com/od/ advancedbonds/a/What-Is-The-European-Debt-Crisis.htm N/A (n.d.): “What fiscal policy for Europe?” (pdf). Retrieved 12/06/12 http://www.cepii.fr/anglaisgraph/communications/ pdf/2002/01020702/marmotte.pdf Tovias, A. (08/05/12): “La Crisis del Sistema Monetario Europeo”, Las Relaciones Internacionales de México, Instituto Matías Romero/ Secretaría de Relaciones Exteriores. Retrieved 5/06/12 http://imrapreso. sre.gob.mx/ acmcontent/a7d894e9efba47589b58280c658aeac/ Programaderadio_G150512_2012-05-08_0852a.m._files/media.mp3 Walker, A. (2012): “Q&A European Stability Mechanism”, BBC World Service Economics. Retrieved 15/11/12 from http://www.bbc. co.uk/news/business-19870747

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