Why have the Euro and The European central bank been so successful?
The initial success started more than fifty years ago, when background for European monetary union was created. Euro and the European Central bank is the result of many decades of hard and constructive work. This is one of the highest levels of European integration and strong rout for further success of the Europe.
Single currency for Europe was proposed in 1970 by Pierre Verner, the Minister of Luxembourg, but just after a year devaluation of US dollar occurred. Furthermore there was the oil crisis and the Verner plan was put away for few decades. So instead of stable Monetary union most countries introduced a currency snake which set limits on exchange rate fluctuations against the number of European currencies and the US dollar. The proper European Monetary Agreement was created when European currency unit (ECU) was created in 1979. This was only a virtual currency and acted as a unit of account. I skip some important developments until 1992 when the Treaty on European Union was signed in Maastricht. It contained the framework and further steps for achieving Economic and Monetary Union and making it successful. In 1994 European Monetary Institute was established and did most of the path for new, common European Central Bank establishment. In 1998 European leaders met do decide which of the states had reached the sufficient rate of convergence and could participate in the single monetary union. Willem Duisenberg was elected as a first president of the ECB (European Central Bank) as well as other members of the board, which I will try to explain later on. So the ECB was established 1st of June 1998. This was institution which formed the whole system of European central banks and the framework for the euro to exist and succeed. 31st of December 1998 the Euro was born and was fixed to all major European currencies forever. In 2002 1st January new bank notes and coins were introduced. Euro became the only currency as means of payments and invoicing currency for more than 300 million people.
The Term Paper on Central Bank Euro Currency European
... European countries replaced their national currencies and introduced a single European currency, the Euro. Some feel the euro is simply the ECU (European Currency ... agreed upon exchange rates. The European union is made up of fifteen ... European Monetary System for at least two years without devaluing against the currency ... impeccable credentials as string central bank governors. A country must meet ...
Euro is not the first common currency for most of Europe. In the Roman Empire times you could buy anything for Roman gold, silver or other metals from Mediterranean to up to Scotland. That was strong military based union under only power of Rome or Constantinople. At these days as we live in modern times and have peace agreements, no single country could take the power, so Europe had to overcome and chose very wisely the candidates for monetary union. So the entry criteria were set in the Maastricht Treaty. All countries had to do a lot of preparations to full fill the conditions which are as follows: 1. A low inflation rate; 2. Sound public finances; 3. At least two years’ membership of the fixed exchange rate system (EMS) without tensions; and 4. Convergence of long term nominal interest rates towards the level of (at most) the three currencies with the lowest rates of inflation. Only countries which fulfilled the conditions could enter the monetary union. Only under strict rules countries could reach economic integration and growth together. From economic theory perspective, the start of European monetary union marked the beginning of an experiment of truly historic dimensions.
One thing is agreements in international government level, but an opposite thing is citizen support. The transfer of responsibility for monetary policy from a national central bank to a supranational institution, the ECB, and the related loss of sovereignty represent the fundamental change in the state. For us, ordinary people, this means the abandonment of the respective national currencies their names full of historic resonance. In most countries majority of people were against such move. Further on, when people understood the privileges and advantages of the euro, they soon changed their mind and support euro happily. Furthermore, under entry into monetary union a country itself losses important instruments (monetary policy and interest rate management) for responding to shocks, such as for example a decline in global demand for its exports. Not only people but also governments have to trust ECB for such decisions.
The Essay on Comparison of monetary and fiscal policies
For most of the last thirty years, the operation of fiscal and monetary policy was in the hands of just one person – the Chancellor of the Exchequer. However the degree of coordination the two policies often left a lot to be desired. Even though the BoE has operational independence that allows it to set interest rates, the decisions of the Monetary Policy Committee are taken in full knowledge of ...
European Central Bank was the supranational institution for 11 countries in the beginning and for 16 at the moment. Imagine difficulties in selecting candidates for president and executive board, when richer countries e.g. France or Germany want more influence, but can do theoretically nothing. The treaty provides for a non-renewable eight-year term of office for each member of the Executive Board. There were disagreements from France on Willem Duisenberg as a first president, so due to his age he agreed not to serve full eight-year cadency. As follows, first executive board was formed with experienced economists and bankers. One of them was Otmar Issing economic professor and former Deutche Bundesbank’s directorate member. Why I mention him, is because this essay is based mainly on his research.
All the background above gives evidence of hard work and preparation for the euro to be successful. After start of ECB internal decisions and policies make this happen. First of all the independence of ECB from other central banks is very important for formulation and implementation or single monetary policy. The independence of personnel is ensured via long-term contracts that cannot be prematurely terminated, except in case of criminal conduct, but not the functions, as provided for under statute of ECB. ECB statute and functions and policies are mainly based on the Deutsche Bundesbank experience. Since it was very independent and price stability targeting central bank trusted and supported among the German public. As I just mentioned the primary and most important objective of ECB is to maintain price stability
The Term Paper on Comparison between Japanese and Canadian Central Bank Policies
The present paper is an investigation of the central bank policies in the countries of Japan and Canada. The paper takes into examination Bank of Japan and Bank of Canada and explores the grounds on which similarities and differences, if any, can be noted. This study is a comparison between the central banks’ policies of both the countries. The structure of the paper overviews the banking system ...
To sum everything up, according to Nostradamus, Mayan and Egyptian civilizations 2012 will be date of total collapse. So we can predict that euro will be still strong before that date, but it won’t really matter after.
