...| Fiscal and Monetary policy of European Union | Macroeconomics Essay | | Fiscal and Monetary policy of European Union The decision to form an Economic and Monetary Union was taken by the European Council in the Dutch city of Maastricht in December 1991, and was later enshrined in the Treaty on European Union (the Maastricht Treaty). Economic and Monetary Union takes the EU one step further in its process of economic integration, which started in 1957 when it was founded. Economic integration brings the benefits of greater size, internal efficiency and robustness to the EU economy as a whole and to the economies of the individual Member States. This, in turn, offers opportunities for economic stability, higher growth and more employment – outcomes of direct benefit to EU citizens. In practical terms, EMU means: * Coordination of economic policy-making between Member States * Coordination of fiscal policies, notably through limits on government debt and deficit * An independent monetary policy run by the European Central Bank (ECB) * The single currency and the euro area The launch of the euro saw the creation of a two-tier Europe, but systemic defects led subsequently to the current crisis of the Eurozone, resulting in a much more complex and problematic set of core-periphery relations between north and south. The preeminent role of Germany in the north is pointing to the lack of democratic legitimacy in the whole construction. The idea of creating...
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...treated the monetary policy of USA and Europe, what institutions they have and what the objectives are. It will be compared the first one with the second one. On the second part of this report, it will speak about the last news about raising the legal limit of USA debt and how this affects to the rest of the world. Finally, when the each monetary policy is clear, it will be given my own opinion. First of all, it should start defining what monetary policy is: Monetary policy is a central bank’s use of either the money supply and/or interest rates to influence economic activity (Froyen, Richard (2009). Macroeconomics Theories and Policies. Pearson Prentice Hall). Monetary policy is run by the Federal Reserve in the United States and by the European Central Bank (ECB) in Europe. The mean objective of the first institution is to insure price stability and full employment; meanwhile, for the second one is price stability. They are the responsible institutions for issuing Money. The ECB focus on price stability because, accordingly with this institution, it cannot control anything more. However, I do not believe that. Everything is linked and, by economics decisions (interest, taxes…), is possible to change different variables which influence, for example, the employment. Even so, it is true that the ECB have in consideration the employment and a sustainable and non-inflationary growth. The European Central Bank by fixing interest rates in the short-term, monetary policy influences...
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...BUSI 604 Discussion Board 4: European Central Bank Michael Hipsman Liberty University EUROPEAN CENTRAL BANK AND WHY I’M INTERESTED IN IT I picked this Key Term due to relevance of the Euro and the European Central Bank in my previous work and current work experiences. I was previously employed with the Federal Reserve Bank, which is the main decision maker for all U.S. currency, and monetary policies. In my current position, the company I work for is headquarter overseas, and has offices located in countries that are members of the European Central Bank. I think researching the European Central Bank, will be very useful to have a more thorough understanding of currency and business practices in within the European Union. In addition, gaining the knowledge of what requirements are needed to join the European Central Bank, and the monetary policies these countries must abide by in order to maintain membership will be insightful towards my GBCA paper, since my country is member of the European Central Bank and European Union. EXPLANATION OF EUROPEAN CENTRAL BANK The European Central Bank is the central bank for nineteen European Union members. The central bank is responsible for all monetary policies within the European Union, and sets interest rates across the nineteen participating members. Any nation that chooses to join the European Union much adopt the Euro as their currency except for the member states which have been exempted under the Maastricht Treaty (Great Britain...
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...Carlo Panico and Francesco Purificato POLITICAL ECONOMY RESEARCH INSTITUTE The Debt Crisis and the European Central Bank’s Role of Lender of Last Resort Gordon Hall 418 North Pleasant Street Amherst, MA 01002 January 2013 Phone: 413.545.6355 Fax: 413.577.0261 peri@econs.umass.edu www.peri.umass.edu WORKINGPAPER SERIES Number 306 The debt crisis and the European Central Bank’s role of lender of last resort by Carlo Panico and Francesco Purificato 1. The debate on the role of the central bank in the European debt crisis reveals the increasing difficulty of the authorities to apply sensible solutions. De Grauwe and Ji express this opinion by noticing that unfounded fears ‘have been widely advertised in Germany and have contributed to creating a view in that country that the German taxpayer is likely to become the victim of a money machine that rewards the profligacy of Southern European countries’ (De Grauwe and Ji, 2012, p. 1). These fears ‘have become powerful political forces that make it difficult for the governments to find rational solutions to the euro crisis’ (De Grauwe and Ji, 2012, p. 13). In order to appraise this opinion we discuss how the European Central Bank (ECB) and the Eurosystem have been intervening in favour of the Government sector. We start by noticing that central banks can play the role of lenders of last resort in favour of the banking and of the Government sector and that “moral hazard” problems emerge in both cases. Yet, they have only been mentioned...
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...Causes of Euro debt crisis 1. Profligacy of the European Government & Unsustainable Fiscal Policy Countries including Greece, Portugal, Ireland, Spain and Italy in Europe are now paying a heavy price on their profligate way of spending, as reflected by the Euro debt crisis starting from late 2009. Fiscal policy is the use of government expenses and taxation income so as to influence the economy, while the average fiscal deficits had grown from 0.6% in 2007 to 7% at the beginning of the debt crisis across the Europe (Économistes Atterrés, 2010). Therefore, more and more debts were being issued by the above governments so as to support their national expenses, leading to an excessive rise in government debt levels. For instance, the average government debts per GDP had raised from 66% to 84% in the same period (Krugman, 2012).Basically, government debt is the money owed by the central government to the debt holders. As a result, with a high level of the debt-to-GDP ratio may imply that the country is less likely to repay the debt holders but higher chance to default on its debt obligations. Greece, contributing about 3.3% of the annual GDP towards the European Union (Central Intelligence Agency, 2012), with a 165.3 % of debt-to GDP ratio in 2011, was responsible for the outbreak of the Euro debt crisis. Historically, Greece Government’s Debt to GDP ratio was already at a relatively high level across Europe (McAuley, 2011)(Graph 1). Following by the adoption of the...
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...analyse the current state of the European Monetary Union. The European Monetary Union or the European Economic and Monetary Union (EMU) is the successor to its predecessor: The European Monetary System, and attempts to deliver an economic system which is unified and cohesive for all the members of the European Union. Perhaps the most notable and drastic change implemented under this systematic collection of policies is the adoption of the Euro currency over the national currencies of the member states out of which only the United Kingdom and Denmark have chosen to not follow in the footsteps of their fellow member countries. The European Monetary Union is essentially a complex but involved coordination of a common monetary policy amongst all members of the European union, accommodating fiscal and economic policies and most notably the currency common to all members, the Euro. This decision to form an exclusive and unified front was undertaken in December, of 1991, in the city of Maastricht in Netherlands and was later more firmly integrated in the Maastricht Treaty on the European Union. It has been designed as a tool to implement the full economic integration of the European Union and to complete the integration as one system, which started in 1957. Through this integration, the European Union hopes to gain the benefits of having a larger sized failsafe net, internal and cohesive efficiency combined together with the European Monetary Union, it would provide a robust and...
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...ten years since the final decision to move to the third and final stage of Economic and Monetary Union (EMU), and the decision on which countries would be the first to introduce the euro. To mark this anniversary, the Commission is undertaking a strategic review of EMU. This paper constitutes part of the research that was either conducted or financed by the Commission as source material for the review. Economic Papers are written by the Staff of the Directorate-General for Economic and Financial Affairs, or by experts working in association with them. The Papers are intended to increase awareness of the technical work being done by staff and to seek comments and suggestions for further analysis. The views expressed are the author’s alone and do not necessarily correspond to those of the European Commission. Comments and enquiries should be addressed to: European Commission Directorate-General for Economic and Financial Affairs Publications B-1049 Brussels Belgium E-mail: Ecfin-Info@ec.europa.eu This paper exists in English only and can be downloaded from the website http://ec.europa.eu/economy_finance/publications A great deal of additional information is available on the Internet. It can be accessed through the Europa server (http://europa.eu) ISBN 978-92-79-08236-8 doi: 10.2765/50808 © European Communities, 2008 Economic governance in an enlarged euro area Iain Begg1 European Institute, London School of Economic and Political Science Abstract: Ten years on from...
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...The Euro is an individual currency that has theoretically been in operation in eleven countries that are members of the European Union. It was introduced in theory in January in the year 1999. The plans for arranging a single currency solidified on 1st January, 2002, when 12 EU member countries stopped using their own individual currencies and declared the Euro as their only currency. The EU has offered to let Britain hold a public vote on whether Britain should use the Euro as part of its economic involvement in the EU. Ever since the Euro has been introduced, it’s performance has been poor when it is compared with the values of the British Pound and the American Dollar. The Euro is a single currency arrangement that came into theoretical operation between 11 members of the European Union in January 1999. On January 1st 2002, 12 EU members got rid of their own currencies and introduced the Euro as their sole currency. If Britain joins the Euro, it will likely be in 2003. The government has offered the British public a referendum on Britain's entry into it though some ministers have clouded the issue as to whether Britain's entry (or not) will be a political or an economic decision. Jack Straw, Home Secretary, has stated that a decision will almost certainly be a political one whereas the Chancellor, Gordon Brown, has stated that the 'Five Tests' will determine whether we join the Euro - i.e., any decision will be an economic one. The Euro’s record since its introduction...
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...Sahag-Grag Pailian • Shant Kupjian • Outline: * Introduction * The European Central Bank (ECB) * Body * Summary of the Article * Analysis * Monetary Policy of the ECB * Interest Rate * The Impact of Interest Rate on: * Inflation * Liquidity * Gross Domestic Product (GDP) * Unemployment * How to Ease the Liquidity * Print more Euros (€) * ECB Buying of Government Bonds * New Governmental Institutions * Decrease of Reserve Requirements * ECB Buying Corporate Bonds * Recommendations * Bibliography Introduction: The European Central Bank (ECB): The European central bank was formed in Frankfurt, Germany in 1988. The ECB is responsible for the monetary system of the euro currency and it consists of 17 European countries. The European central bank works with the other national banks of each of the European Union members to formulate monetary policy that helps maintain the euro’s purchasing power. The responsibilities of the ECB are to formulate monetary policy, conduct foreign exchange, hold currency reserves and authorize the issuance of bank notes, among many other things. The European central bank and the national central banks constitute the Euro system, the central banking system and the monetary authority of the euro area. The main objective of the Euro system is to maintain price...
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...single-currency bloc expected to be negligible. Problems in some of the Eurozone’s big economies are worrying analysts. The situation in Italy, for instance, is quite dramatic, with the economy stagnating. In France, high public deficits are a big worry; such a policy could not be continued for much longer. Underperforming fellow Eurozone nations could affect Germany’s own economic growth prospects, since they are the customers for most of Germany’s exports; it is expected that Germany’s gross domestic product will expand by just 1 percent in 2015. Despite the evident problems in Eurozone, Germany and France are determined to restore a confidence to the Euro.’ Discuss the statement, and use examples to justify your opinion. 1.0 Introduction The Global Financial Crisis or the ‘great recession’ as it is now known has been widely regarded as the worst global recession since the end of the Great Depression (Drezner, 2014). The events following the collapse of the US housing market and the subsequent financial meltdown has had consequences on a global scale, nowhere is this more evident than in the Eurozone (Allen & Ngai, 2012). The Eurozone, made up of 19 EU member states that have adopted a common currency and monetary policy, have faced increasing levels of public debt, economic stagnation and civil unrest (Ucler et al. 2015). Problems are further compounded by the fact that there...
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...Foundations of the European Union The European Monetary System and Policy By Maarten Solinger International Business Program i. Executive Summary The European Monetary System and Policy dates back to 1959 when the first step towards monetary union was made with the treaty of Rome. Right now, 47 years later, the euro is a fact, with a monetary system that prevails over all the countries of the euro-zone, with a policy that was originally based on satisfying growth, low to no inflation, low unemployment and lower and more stable prices, as well as elimination of conversion fees, deeper financial markets, and lower volatility therein. It has been successful in accomplishing most of those objectives, even though some are openly disputed. Whether the euro as a whole is successful remains to be seen, since the question if the euro-zone in itself is suitable for monetary union is left largely unanswered. Two criteria are met with, and two are not. The key success factor now and in the future will be the policy of the ECB, which is dual; fight of inflation at the expense of economic growth or vice versa. How long the policy of the ECB can count on the trust of its members depends largely on movements in the world economy, the financial markets and the ability of policy makers to shroud the efforts in political correctness. ii. Table of contents i. Executive Summary p. 2 ii. Table of Contents p. 3 iii....
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...with the changing global financial system. The policy response triggered by the recent financial crisis has been rapid and it appears that the global policy response has helped to mitigate the effects of the financial crisis. European Central Bank response to the latest crisis was an example of swift and effective reaction. It combined a mix of standard and non-standard monetary actions. 2. European Central Bank (ECB) – history and mission The ECB is the central bank for Europe's single currency (the euro) and its main task is to maintain the euro's purchasing power and thus price stability in the euro area. The ECB was created in 1998 to serve as the central bank representing the interests of the countries belonging to the European Union. In less than a decade, the ECB, headquarter in Frankfurt, Germany, has emerged as one of the world’s most important financial institutions. The Treaty of Nice (1967) established a three-stage plan to create a single currency and monetary policy for the euro area by creating the European System of Central Banks (ESCB). The ESCB consists of the ECB as well as the national central banks for each of the member nations. The ECB is successor of the European Monetary Institute (EMI). The EMI was established at the start of the second stage of the EU's Economic and Monetary Union to handle the transitional issues of states adopting the euro and prepare for the creation of the ECB and European System of Central Banks. The ECB formally replaced...
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...of the European Central Bank (ECB) and Masaaki Shirakawa of the Bank of Japan respectively throwing the political leaders of some of the most powerful nations behind them. Why they were considered powerful? Well, the year 2009 has its own prominence from the economic prospective. Recession was at its peak, inflation was making some of the powerful nations of the world shaky, stock markets plummeted and there were many more such economic drawbacks that were evidenced during this year. These slowed down many economies and even were the reasons for the fall of some of the developed nations. Nations were suffering with a deficit in money and assets. Some of the huge scale banks collapsed. Almost all of the sectors got affected. Even some famous companies went bankrupt. The economic policies run by the political leaders run on the wheels of the policing by the bankers. In the world that existed before the financial crisis, central bankers were triumphant. They had defeated inflation and tamed the business cycle. And they had developed a powerful intellectual consensus on how to do their job, summarized recently by David Blanch flower, a member of the Bank of England’s monetary policy committee, as “one tool, one target”. The tool was the short-term interest rate, the target was price stability. So central bankers play a major role in reconciling the economic drawbacks. Why is Bernanke powerful? Federal Reserve Chairman Bernanke is responsible for guiding monetary policy...
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...Introduction Over the last 12 months, the excessive sovereign debt problems in Portugal, Ireland, Italy, Greece, and Spain which all are members of European Union led to a crisis in the global financial system. As the European Monetary Union members use the Euro as the common currency, they do not have abilities to use independent monetary policy, the solution of this debt crisis which can influence the whole global financial system becomes to difficult to be found. Chart 1: How country debts and budget deficits compare [pic] Source: Eurostat Newsrelease Euroindicators 2010 According to the Chart 1 above, the debt of Italy is 115.8% of GDP and Greece (115.1% of GDP) is closely followed, while Ireland has the highest budget deficit of 14.3% of GDP and next is Greece (13.6% of GDP). However, the European Union member states were required to have 3% for the ratio of the actual government deficit to GDP as market prices and 60% for the ratio of government debt to GDP at market prices (Treaty on European Union, 1992). It is clear that all member states shown above broke the standard of Treaty on European Union and have excessive deficit and debt relate to the GDP. Government debt is defined as the government borrowing in order to satisfy the short-term liquidity needs or the longer-term budget capital expenditures (Edirisuriya, 2010). The government debt usually can be caused as an accumulated governmental deficit over several years or several decades. A large scale of...
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...29, 2012 Discussion Board 4 Describe when and why central banks buy either their own currency or the currency of another nation in an effort to control exchange rates. Central Banks has control over monetary policy. Monetary policy has three steps such as: open market operations, change in reserve requirements, and changes in the discount rate. Central bank can expand the money supply by the following; the discount rate is being reduced, Reduction in reserves requirements and bonds being purchased. However, Central bank can contract the money supply by: Discount rate being increased, Increasing reserves requirements, and selling of bonds. Central Banks buy currency because it affects the supply of money. Many central banks may require that most foreign exchange receipts (generally from exports) be exchanged for the local currency. The bank is marked-based the local currency being purchased by the rate being used. Money supply is increased by the central bank when it purchases the foreign currency by selling the local currency. The central bank may reduce the money supply by many reasons which include selling bonds or foreign exchange interventions. What did the central banks do to stabilize the financial systems in 2007&2009? Monetary policy had been eased, with policy interest rates approaching zero in many countries and quantitative easing being attempted by a number of central banks. The Federal Reserve and other central banks developed new facilities to assist stabilize...
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