Integration in the EU and Monetary Policy

explanatory Essay
2298 words
2298 words

Integration in the EU and Monetary Policy

The creation of the European Union (EU) is a great political and economic feat. For it is the ultimate sign of cooperation between nations that had been in constant rivalry before. Nevertheless, the ideals of such a union cannot stand alone without having a strong foundation and continuos rational decision making by all of the actors involved. If we assume that the European Central Bank’s (ECB) principle role is to guarantee the well-being of all EU members, then policy making becomes a very complex issue since it must consider such a large and diverse area. I believe there needs to be more economic integration between EU countries for monetary [and fiscal] policy of the ECB to be beneficial to all participants.

Even before World War II, the dream of a unified Europe existed. This ideal emerged from the desire to guarantee peace, for a common political and economic system would, in theory, lower the chances of war. This is because by slowly erasing countries’ borders and making them intra-dependent, states are forced to work with each other rather than oppose one another. A unified economy would also turn Europe into one market and increase the continent’s role in the international monetary system. In March of 1979, eight countries officially participated in the European Monetary System (EMS) by pegging their currency to the German mark. By tying their monetary policy to the Bundesbank’s well known monetary targeting policy, they were able to import German credibility to reduce their own inflation. Indeed, EMS members considerably reduced their inflation by exchange-rate targeting, making Germany the anchor country. France reduced inflation from about 5% in 1987 to 2% ...

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...onomies with the rest of the EU members.

[1] Aksoy, Yunus, Paul De Grauwe, and Hans Dewachter. “Do Asymmetries Matter for European Monetary Policy?” University of Leuven: Center for Economic Studies. April 2002

It is clearly beneficial for the well-being of the EU for there to be greater cooperation between members. If borders truly want to be erased, intra-EU trade and labor mobility needs to increase substantially. Also, fiscal policy needs to be increasingly coordinated so the European government can use it as a tool. Although, with enough fiscal room granted to individual countries so they can use it against domestic shocks. In conclusion, political and economic integration should be the ultimate goals of the EU, because by making Europe more uniform, at least in numerical terms, ECB policies will be most effective and beneficial for each country.

In this essay, the author

  • Opines that the creation of the european union (eu) is a great political and economic feat. it is the ultimate sign of cooperation between nations that had been in constant rivalry.
  • Explains that the dream of a unified europe emerged from the desire to guarantee peace.
  • States that mishkin, frederic s., the economics of money, banking, and financial markets, sixth edition.
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