European Monetary Union (EMU) and Financial Integration

1: Risk, Financial Management and Governance Culture – European aspects of the crisis
Intro to debt and risk management, foreign exchange risks and hedging. Intercultural competence: socio-economic roots of differences in EU banking; corporate governance in EU/US compared.

2: The Monetary Regime in Europe before EMU
The European Monetary System & the Exchange Rate Mechanism 1, The Changeover to the Euro, entry criteria and how Greece and others cheated these.

3: Implications of EMU/EU Financial Integration and the current financial crisis
European Central Bank and economic policy, economic and political implications of EMU; implications to banking and financial markets, to capital and foreign exchange markets, how companies had to adapt. Revision of the Stability & Growth Pact; Pros and cons for the UK to join. The Greek debt problem, the European Stabilization Mechanism, and issues of cross-border banking.

4:  EMU and the US-$ in the global financial crisis; Ongoing EMU-enlargement
The Euro´s international role and implications to $/U.S., the euro and implementation in New EU Member States from Central and Eastern Europe.

Research exercises on:

• “European aspects of the global financial market crisis” and
• “The Greek debt crisis – financial, economic & political causes, consequences & ways out” e.g. with James Ignatief (2012): If I were 25 & Greek http://www.youtube.com/watch?v=ID8UPXcxS10

Module 1:
Risk, Financial Management and Governance Culture – European aspects of the crisis

Introduction to risk management (Readings part  1/1):
Functions and types of financial risks, financial markets and market participants. sources of finance and the cost of capital. The determinants of market interest rates. capital formation process and money.  Differences between the U.S. and Europe. The current global financial crisis, causes and particular European issues (including http://crisisofcredit.com/)

Foreign exchange risks and internal hedging techniques (readings 1/2)
The nature of a companies´ foreign exchange exposure: measurement and risk identification. Understanding what is going on the market, forecasts and steps for effective forex risk management. Company-internal techniques for hedging risk.

Intercultural Competence: socio-economic roots of differences in EU banking (readings 1/3)
An introduction into functions and types of financial markets and participants. The capital formation process and the different emphasis in „fluid“ capital-market-driven (US) vs. „dedicated“ universal banking-driven (continental European) markets. Different reform paths in the US and the EU.  

Corporate Governance in the EU (readings 1 / 4)
Characteristics of corporate finance and corporate governance in the euro area compared to the U.S: ownership structure and investor relations (financial stake-holder relations…), financial transparency and information disclosure (accounting practices, “comply or explain” …), board management structure and process (the role of non-executive directors, stock option plans …).

Module 2: The Monetary Regime in Europe before EMU

Pre-reading: EU-Institutions and Membership
The EU Commission, The EU Council, The EU Parliament and their tasks. The Copenhagen EU-membership criteria and their application.

The evolutionary Process since 1945 (readings 2/1):
From Bretton Woods to the European Monetary System; pegging, floating, managed float. The creation of monetary zones and optimal currency areas.

The European Monetary System and the Exchange Rate Mechanism as Predecessors to EMU (readings 2/2)
Coordination of European monetary and exchange rate policies since 1957. The European Monetary System as an intermediate model towards EMU. Functions and usage of the ECU. EU-legislation for the financial sector and resulting implications.

The Changeover to the Euro (readings 2/3)
The introduction of the single EU currency "Euro" in non-cash format (1999), participants and convergency criteria, timetable, determination of conversion rates, the tasks during the dual cash-period in early 2002; how governments cheated in EMU-entry, and the role of derivatives.

Module 3: Implications of EMU/EU Financial Integration and the current financial crisis

EMU: The European Central Bank and Economic Policy (readings 3/1)
Goals and instruments monetary policy in general. Comparing the US-Fed to the European System of Central Banks (ESCB); the ECB´s institutional setting, monetary policy instruments & economic policy within the Eurozone (http://www.ecb.int/pub/pdf/other/escb_web_2011en.pdf see also http://www.ecb.int/ecb/educational/html/index.en.html) and measures set during the financial crisis.

The Stability and Growth Pact and the European Stabilization Fund/Mechanism (readings 3/2)
The conduct of monetary and fiscal policies within EMU, the non-compliance of Greece and others. Rationale, changes and implications of the SGP (http://www.ecb.int/pub/pdf/scpops/ecbocp129.pdf). Government solvency in EU countries; the EUR 750 bn (USD 950 bn) stabilization fund & rescue package and central bank and the EFSF (European Financial Stability Facility) and the European Stability Fund as its permanent successor help to defend the Euro (http://www.efsf.europa.eu/about/index.htm)

Economic & Political Implications of EMU: Should the UK join? (readings 3/3)
Opportunities & risks of Monetary Union, the case for and the case against EMU. Pros´ & cons of Monetary Union to economies & business. Optimal Currency Area (OCA) theory and conditions, including http://www.econ.ku.dk/okombe/intmonecon/slidesch13part1.pdf and part 2.

EMU & Banking Integration in the EU: (readings 3/4)
Effects of EMU on the banking systems, bank consolidation and cross-border banking. Banking strategies after the Euro, how companies had to adapt. Challenges for EU cross border bank supervision, the functions of the European Systemic Risk Board (ESRB) and the European System of Financial Supervisors, including the European Banking Authority and its “stress tests”.  

EMU & Capital Market Integration in the EU (readings 3/5):
European stock and bond markets, privatization and small-caps after EMU. Implications of the Euro to bond, stock and derivatives markets.  Stock exchanges in the battle for efficiency and markets. Ongoing reforms efforts by the EU Commission. The EU sovereign debt markets, government bonds, the current financial crisis and the European Securities and Markets (supervisory) Authority.

Module 4: EMU and the US-$ in the global financial crisis; Ongoing EMU-Enlargement

The Euro´s International Role and Implications to $/U.S.A. (4/1)
The Euro as international unit of account, medium of exchange and store of value in the private and official markets. Implications of the Euro for international financial markets, for the U.S. Federal Reserve System and the U.S. Dollar.

The Euro in Central & Eastern Europe & EMU (4/2)
Slovenia (2007) and Slovakia (2009) already introduced the Euro, Estonia will join in 2011. Seven more Central and Eastern European (CEE) countries that joined the EU in 2004/2007 are obliged to introduce the Euro, i.e. to join the Euro zone upon fulfilling the Maastricht criteria, while the Euro is already in use in parts of former Yugoslavia. CEE thus is already an extended euro area. We will discuss the criteria (should the same criteria be applied for countries still in transition from a planned to a market economy as was the case for stable economies?, candidates and process; economic, institutional and political prerequisites for participation in EMU; ERM II and how to prepare, taking the introduction of the Euro in Slovakia and Slovenia as recent examples.