The implications of the european monetary union essay

Over time, the currency became a popular unit for issuance of financial instruments such as bonds.

The European Central Bank is the sole issuer of banknotes and bank reserves therefore the monopoly provider of the monetary base of an economy. This makes this institution the only one which has the needed instruments to make monetary policy.

The aim of this paper is to analyze why and how successful the European Central Bank has several instruments to achieve this important goal.

The European Union Essay | Political Science on Parson's College

The aim of this paper is to discuss the main goal of the European Monetary Policy and to analyze the instruments which can be used to maintain this goal.

Finishing with a short evaluation about how successful the European Monetary Policy is.

The implications of the european monetary union essay

But with the introduction of the Euro as European currency, it was inevitable to introduce also a single monetary policy. This was a big and important step towards a unified Europe. The European Central bank controls by its policy the cost of money, the supply of money and the availability of money.

But the biggest problem of European monetary policy is that according to Monetary Theory, monetary and fiscal policy should always go together, in fact in Europe every state has its own fiscal policy and this policy is differing dramatically from state to state. To reach the general goals of monetary policy like employment and non-inflationary economic growth taxation has a very high importance.

Regional inflation rates and growth dynamics still create divergence between the member states. This is the main critic point on the European monetary policy. The aims of monetary policy are organized hierarchically; this means that price stability has overriding importance on all other objectives followed by the European central bank.

After price stability is reached, the European Central Bank defines it at important to hold the employment rate high and to maintain economic growth constant. But this goal can only be achieved in a stable price environment. Generally leading economists assign such a high importance to a low inflation rate because of different motives.

The Treaty establishes the maintenance of price stability clearly as the primary objective of the European Central Bank but it does not define exactly what is meant by price stability.

The implications of the european monetary union essay

Therefore the European Central Bank had to find its own definition about what is defined as Price stability. Before this time period the paradigm of tradeoff between high inflation rates and economic activity developed by A.

Thus considering this theory the negative effects of high inflation would be outweighed by the higher incentive to invest. However this theory was well researched and proven by historical evidence, the Great Inflation proved that the relationship between high inflation rate and growth does not lead to the same result as stable prices do.

In fact in the long run this relationship is negative. There are several evidences that the macro economical performance of a national economy diminishes when inflation increases ECB Bulletin, The European Union launched the economic and monetary union (EMU) of Europe on January 1st, January 1st of marked the establishment of a single currency through the introduction of euro bills and coins to 12 EU states.

The European monetary union is an area within the European Union whereby people, services, goods and capital move freely without facing any restrictions. The imperative to the success of European Monetary Union is employment of use of single European currency the Euro.

The European Monetary Union was a hubristic endeavour from the start, full of unprecedented ambition in historical terms. (), “The two concepts of money: implications for the analysis of optimal currency areas” European Journal of Political Economy 14 (3 Kundera, M.

(), Testaments Betrayed: An Essay in Nine Parts.

Economics of Monetary Union

Harper. Italy and the European Union Enlargement - Enlargement is the process through which new members join the European Union. Since , when the first 'integrated Europe' was born, the EU went from 6 member states to The European Economic and Monetary Union Research Paper This sample The European Economic and Monetary Union Research Paper is published for educational and informational purposes only.

Like other free research paper examples, it is not a custom research paper. to promote peace and stability, and to establish a Euro-Mediterranean Partnership between 15 Member States of the European Union and 12 Mediterranean countries.

The Med 12 are: Algeria, Morocco, Tunisia, Egypt, Israel, Jordan, Lebanon, Palestinian autonomous territories, Syria, Turkey, Cyprus, and .

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