Economics of the European Union: INTENSIVE Lecture notes

What are some key goals of the Common Agricultural Policy (CAP)?

Answer: Some key goals of the CAP include ensuring fair income for farmers, increasing competitiveness, promoting climate change action, ensuring environmental care, supporting rural development, and protecting food and health quality.

How did the financial crisis impact the interbank market?

Answer: During the financial crisis, banks grew suspicious of one another and stopped mutual lending, leading to disruptions in the interbank market. Central banks provided liquidity directly to their banks to stabilize the financial system.

What are the three elements of the new CAP system?

Answer: The three elements of the new CAP system are lowering support prices to the world price level, compensating farmers with decoupled direct payments, and linking the payments to social concerns such as the environment.

What are some concerns associated with the CAP\'s impact on the environment?

Answer: Concerns associated with the CAP\'s impact on the environment include pollution, water quality issues, animal welfare, and the industrialization of farming practices.

What are the consequences of non-compliance with the recommendations in the Excessive Deficit Procedure (EDP)?

Answer: If a country does not follow the recommended course of action in the EDP, the Council can adopt increasingly detailed and urgent recommendations. Further non-compliance may result in additional fines up to a maximum of 0.5% of GDP.

What is the role of moral hazard in the banking system?

Answer: Moral hazard refers to the incentive for banks to take excessive risks when they believe they will be bailed out or supported by guarantees. This can lead to reduced bank capital and increased financial fragility.

What triggers the sanction procedure in the Excessive Deficit Procedure (EDP)?

Answer: After several failures to comply with the recommendations of the Council, a sanction procedure can be triggered. Following a next-to-final warning, the Council can impose a sanction by qualified majority voting (QMV), which is a deposit based on the delinquent country\'s GDP.

What are the redistributive effects of price floors in the CAP?

Answer: Price floors in the CAP especially benefit large, rich agricultural producers and lead to transfers from poor consumers to these farmers.

What are some of the policy measures taken to restore confidence in the banking system after the financial crisis?

Answer: Measures included increasing bank capital requirements, introducing bail-in debt and market discipline, implementing ringfencing of bank activities and living wills, and establishing the European banking union with its supervisory and resolution mechanisms.

How does the CAP impact consumer surplus and producer surplus?

Answer: The CAP leads to lower consumer surplus and higher producer surplus, resulting in transfers from poor consumers to rich farmers.