...The European Monetary Union (EMU) was established as a formal objective in 1992 from the Treaty of Maastricht. In 1995 initial details of a union currency “the Euro” was announced and in 1998 the European Central Bank (ECB) was created and in 1999 the Euro underwent a 3 year transition introducing the Euro notes and coins. The purpose of this text is to analyse in detail EMU’s macroeconomic framework and performance and how this has evolved in the past 10 years. Firstly, I will look into the fiscal policy set out by the EMU however the bulk of the text will look into the monetary policy framework. Finally I will conclude by briefly trying to pin point the links between the macroeconomic framework to the current Eurozone crisis. In general on average the Eurozone’s first decade is viewed as a success and the ECB met its targets by delivering low and stable inflation with an output gap consistently close to 0. However, if we inspect country by country, we witness a large variation. The macroeconomic framework of the EMU, takes 2 main forms Fiscal policy and Monetary Policy. National governments are responsible for their individual fiscal policy while the ECB undertook the responsibility of Monetary Policy. Under the umbrella of Fiscal policy, the Stability and Growth pact provides a clear economic boundary to all Eurozone members. The Stability and Growth Pact specifies 2 boundaries. Firstly, national budget deficits must be kept below 3% and secondly the ratio of the government...
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...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 the EMI on...
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... Jean Monnet Chair Professor J.H.H. Weiler Harvard Jean Monnet Working Paper 1/01 Päivi Leino The European Central Bank and Legitimacy Is the ECB a Modification of or an Exception to the Principle of Democracy? Harvard Law School Cambridge, MA 02138 All rights reserved. No part of this paper may be reproduced in any form Without permission of the author. © Päivi Leino 2000 Harvard Law School Cambridge, MA 02138 USA The European Central Bank and Legitimacy Is the ECB a Modification of or an Exception to the Principle of Democracy? Päivi Leino, Åbo Akademi University( M.Pol.Sc. (international law), Åbo Akademi University, Finland; LL.M. candidate, London School of Economics and Political Science. This paper was concluded on August 8, 2000 and subsequent changes have not been considered. The author would like to thank Professor Markku Suksi and Lic.Pol.Sc. Kurt Långkvist for their comments and encouragement. The author has exclusive responsibility for all views, errors and omissions. Comments are invited to Paivi.Leino@abo.fi.) 1. The Sovereign of Monetary Policy The creation of a single market and the continuing concentration and integration at the European level have created phenomena that can neither be governed by nationally based policies nor left to the working of unregulated markets.( Hirst, Paul and Thompson, Grahame (1996), p. 156.) According to the European Court of Justice, one of the cardinal...
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...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 & Denmark). Prior to membership into the Euro Zone...
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...With recession and several bank crises overhead the Eurozone, the Euro Central Bank (ECB) must introduce methods to improve the cash flow. European central bank doesn’t call for an interest rate cut to spark the slow economy. If they employ An interest rate cut it would drive more individuals and companies to borrow money. It’s similar to the U.S. at the moment. This policy would help get money flowing again in the slow economy but the ECB hasn’t done so. The economy lacks spark due to the reduced cash flow. ECB efforts to fuel the economy involve recapitalizing. The ECB has decided to put money into the major banks that are struggling. Bank crises are spreading from smaller regional banks in outlying countries (Spain and Portugal) to the financial centers of Europe. Some parts of the Eurozone are already facing recession, yet the ECBs’ leader, Mr.Trichet decided to leave the interest rate unchanged. Many analysts fail to understand his decision and regard him as shortsighted - looking only to the immediate future. Not more than 3 months ago, the ECB leader thought inflation was the biggest threat and rose key interest rate to 1.5% to tackle it. But that’s not the only issue; now the Eurozone is exposed to recession, bank failures, sovereign defaults and the breaking up of the euro zone. Trichet defended his decision by saying that the ECB is ‘“fully credible in terms of price stability” which is not the case since inflation rates aren’t uniform across region due to...
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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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...above crisis, thus causing a great impact beyond the borders to the world as a whole. We will look into various roles undertaken by the European Commission (EC), the European Central Bank (ECB) and the International Monetary Fund (IMF) in helping to solve the euro zone Debt Crisis. European Central Bank (ECB) The ECB is one of the seven institutions of the European Union which was listed in the Treaty on European Union where it administers the monetary policy of the 17 EU members’ states where euro zone is consider one of the largest currency areas in the world. Founded in 1998, the central bank is one of the most important in the world with more than 500 billion euros in its reserves. Currently, the bank is based in Frankfurt, Germany and led by Jean-Claude Trichet. The primary function of ECB is basically to implement monetary policy for Euro zone, responsible for the care of foreign reserves of the European System of Central Banks, and to promote and conduct smooth operating of the financial markets and foreign exchange functions. In addition, ECB also handles exclusive right to authorize issuance of banknotes and member states can issue euro coins only prior to ECB approval. The European Central bank, or ECB for short, is the European Union’s institution in charge of monetary policy European Commission (EC) European Commission (EC) is the executive body of the European Union (EU) responsible for proposing legislation,...
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...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 stability:...
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...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 to curtail the interventions in favour of the Government sector, in spite of the fact that, during the last two decades, moral hazard regarding the behaviour of the Government sector has proved easier to solve than that regarding the behaviour of the managers of financial firms. The rules on multilateral surveillance, introduced to coordinate the monetary and fiscal policies in Europe,...
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...According Balassa (1962) there are five stages of economic integration: the free trade area, the customs union, the common market, the economic junction and the complete economic integration. The European Union is on the penultimate stage, which is the economic union. The objective of this essay is to know more about the European monetary union and other touch points that are to be the EMU, the process, countries belonging to the European Union but not part of the EMU and its reasons. Economic union is a common market that removes restrictions on trade between countries. The currency is the same and a central authority controls fiscal policies. It has a single currency and monetary policy. The objective of this stage is that members actually are formed as one nation and its features are a common fiscal common currency, harmonized tax rates, the pooling of foreign exchange reserves, and monetary policy. (Cerdeira, 2009) The EMU is a major step in the integration of the economy of the European Union. It involves the coordination of economic and fiscal policy of the same coin policies, some countries took the next step to the next stage and adopted the euro as its currency, and these countries are part of the euro area. (EC, 2014) " One Market, One Currency " is what the European Commission defined as a geographical area where the economy is a single currency and where risks can be managed and has flexibility among country. This would make cuts of a country being adversely...
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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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...Overview of ECB The European central bank (ECB) has recently implemented a series of measures aiming to fight low inflation and stimulate the euro zone economy. They announced to cut the key interest rate below zero to stimulate lending and economic growth. Draghi said the ECB still saw no evidence of eurozone deflation but said the longer inflation remained at very low levels, the greater the risks. ECB president Mario Draghi said the decision to cut rates reflected an outlook of low inflation and economic weakness in the eurozone; the longer inflation remained at very low levels, the greater the risks. The primary objective of the ECB’s monetary policy is to maintain price stability. The ECB aims at inflation rates of below, but close to, 2% over the medium term. This study is to discuss the measures set upon by ECB is really workable to all the countries in the Euro zone. While the cut on interest rate was implemented since November and if the negative interest rate will help support the ??? Risks of deflation 1. Unemployment. Unemployment in Europe has increased significantly since 2008, with the unemployment rate peaking at 12.2%. Consumer prices rose by just 0.5% in the eurozone in May. The ECB targets inflation of just below 2% over the medium term, and on Thursday cut its own forecasts for the next three years. It sees consumer price inflation of just 1.4% in 2016. Speaking at a press conference after the announcement of the rate cut, Mr Draghi said the...
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...Financial crisis of 2008 Student’s Name University Affiliation Financial crisis of 2008 The financial crisis of 2008 resulted to the greatest recession. This was after the great depression that had happened in 1929. This happened even after the treasury department and the Federal Reserve aggressively trying to prevent the United States system of banking from collapsing. The first suspicion of what caused the financial crisis was when the housing prices started to drop from 2006. This was a red light that the economy was in trouble. Nevertheless, realtors were relieved at the time. There was hope that the housing market that was overheated would securely go back to a level that is more sustainable. The realtors did not realize is that the number of people who owned homes with credit that was questionable had loans for 100 percent or even more of the value of their homes. What banks had done is that they had resold the mortgages in packages as a part of mortgage backed securities. Primarily, the Federal Reserve was thinking that the damage from the crisis of subprime mortgage will remain secluded to housing. However, prevaricate funds and other financial institutions all over the world had ownership over them. They were in pension funds, corporate assets and mutual funds. Given that the initial mortgages had been cut and sold again in parts, then the actual derivatives became impossible...
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...drawn discussions ECB is finally making its move towards addressing the very objective it takes more seriously, ie, an inflation target of 2%. And it couldn’t have come any sooner. Last year inflation in the euro zone was negative with a deflationary spiral luring closely behind. By injecting more money into the economy Mario Draghi, ECB’s president, hopes to achieve spurring growth and inflation, much like what the programs have done in America and Britain. But more importantly, Mr. Draghi cannot implement policies on the same terms. Instead of dealing with just one central bank and one federal government, he has to take 19 into consideration. A big-bond buying programme in a monetary union is very problematic, especially due to varying creditworthiness among its member countries, ranging from triple-A for Germany to junk for Greece. But the main issue that has been on the table of discussion is simply risk. Or more precisely, how risk-sharing among the members should be distributed, in case a country defaults on their debt. In other words, who has to open up their wallet the most. The country that especially has been stalling the program is Germany, simply because they cannot come to terms with the ECB and Mr. Draghi. They fear that their taxpayers, including union members, will have to cover the future losses of the ECB. Since the Bundesbank normally would expect to shoulder a quarter of the losses incurred by the ECB, they have cause for concern. What ECB eventually did is...
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...The International Bond Market Impact of Unconventional Monetary Policy Yu Zhang 130023326 University of Dundee College of Arts and Social Sciences School of Business April 2014 Content Abstract ................................................................................................................................................... 2 Chapter 1 Introduction .......................................................................................................................... 3 Chapter 2 Literature review.................................................................................................................. 6 Chapter 3 Data and Methodology....................................................................................................... 10 3.1 Data.............................................................................................................................................. 10 3.2 Methodology ............................................................................................................................... 10 Chapter 4 Four Central Banks’ Unconventional Monetary Policy Announcements Details ........ 13 4.1 Important Announcements........................................................................................................ 13 Table 1 Important announcements by the Federal Reserve ............................................................ 13 4.2 Quick Summary: .....................................................
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