Anonymous
Anonymous asked in Social ScienceEconomics · 1 decade ago

Monetary Policy of Euro?

Can somebody explain the monetary policy of euro, and how is it different from monetary policies of other places? And if possible (optional), please explain to me why is it failing in euro and that is there any solutions to the following matter?

Thank you very much.

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  • Anonymous
    1 decade ago
    Favorite Answer

    Monetary policy in the Eurozone is conducted by the European central bank (ECB) in Frankfurt. It is an independence organization with a clear goal to keep inflation rate under 2%. It is working closely with the country's central bank to perform the monetary policy, and follows the agreement of member countries to have a strong discipline in conducting fiscal policy. It keep the policy rate of 3%, compared to the fund rate which is approaching zero in the US. The Greek crisis has a pressure to the value of the Euro. It went down from $1.45 and remains at $1.20 a Euro now. The ECB has no special policy to drive up the Euro. But it works closely with the IMF, the German government and key member of the Eurozone to provide enough funds for Greek. It demands austerity, discipline and commitment to use the money. It has been the correct way to solve the Greek situation since the Greek's bond rate and panic are going down to almost the normal position. The test of the banks has also shown a good result.Now Germany's economy is growing about 3% mainly due to an increase in exports to China, India and Brazil. It will be the engine of growth of the Eurozone.Many countries have applied to the Eurozone, including Denmark.

  • 1 decade ago

    1. Most monetary policies are established in the context of a single country with a single economy. The Euro policy is determined by a central bank that is not attached to any single government and applies to 16 different economies, with very different needs.

    2. The Euro monetary policy is very confused. The European Central Bank claims that its goal is to maintain inflation rates close to but under 2%. But, in fact, it has done very little to increase inflation even when inflation was very close to 0%.

    http://www.ecb.int/mopo/html/index.en.html

    (A little inflation is good for the economy:

    http://pages.stern.nyu.edu/~nroubini/NYT/krugecona...

    )

    3. One possible reason the Euro is falling is the uncertainty in the future of the Euro caused by the Greek crisis.

    http://econ.economicshelp.org/2010/03/leaving-euro...

    http://business.timesonline.co.uk/tol/business/eco...

    The market hates uncertainty.

    http://en.wikipedia.org/wiki/Risk_aversion

    4. Another posible reason is that the head of the European central bank has said some very stupid things recently and so may not be trustworthy.

    http://delong.typepad.com/sdj/2010/07/paul-krugman...

    Similarly, Germany has been forcing other countries to undergo austerity measures which will cause recession throughout southern Europe

    http://www.guardian.co.uk/commentisfree/2010/sep/1...

    http://www.reuters.com/article/idUSTRE67B2E3201008...

    http://www.bloomberg.com/news/2010-09-14/-deflatio...

    http://dealbook.blogs.nytimes.com/2010/06/29/in-ir...

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