Sunday 9 October 2016
During the last decades there has been a growing recognition, perhaps stemming from the turbulent experiences of the 1970s that in the long term monetary policy can only systematically control the price level and not real economic variables.
Partly as a consequence of the widespread consensus regarding the limits of monetary policy, there has been a tendency to delegate the responsibility for conducting monetary policy to independent central banks (time inconsistency reasons, etc).
This broad consensus – both with regard to the role of monetary policy and the appropriate institutional arrangements for its conduct – have been encapsulated in the design of the ECB.
1. Price stability is the overriding objective of the ECB
2. Functional independence and economic are ensured, not only from national Governments but also from Community governments or any other body
The model of monetary policy with fixed exchange rate, is a proxy for the eurozone. If countries deprive themselves of rates of exchange as policy instruments, they impose on themselves losses that are essentially losses emanating from enforced departure from internal balance.
After 2008 financial crisis what started as a banking crisis became a sovereign debt crisis.
The Commission’s view remark that Europe’s debt crisis was initially triggered by events in the American banking sector. Deregulation in the US financial sector was the main cause. When a slowdown in the US economy caused over-extended American homeowners to default on their mortgages, banks all over the world with investments linked to those mortgages started losing money. America’s fourth largest investment bank, Lehman Brothers, collapsed under the weight of its bad investments, scaring other banks and investors with which it did business.
The fear that more banks could fail caused investors and banks to take extreme precautions. Banks stopped lending to each other, pushing those reliant on such loans close to the edge. European banks that had invested heavily in the American mortgage market were hit hard.
The critical current view of Degrauwe point of view is introduced trough his papers of 2006 What Have we Learnt about Monetary Integration since the Maastricht Treaty? JCMS 2006 Volume 44. Number 4. pp. 711–30 and PAUL DE GRAUWE AND YUEMEI JI, Social Europe Journal 25/02/2013 Panic-driven Austerity In The Eurozone And Its Implications, which present critical views about the EMU policy in recent times.
4) What Have we Learnt about Monetary Integration? Case Study Spain a) Monetary policy in the EMU: The Commission’s view b) Mundell I and Mundell II c) Panic driven austerity: the ECB versus the FED d) The Spanish case i) Presentation: What have we learn (about Monetary Integration_8) ii) Readings: (1) What have we learn about Monetary Integration? De Grauwe 2006; http://baobab.uc3m.es/monet/monnet/spip.php?article652&var_recherche=What%20Have%20we%20Learnt
(2) De Grauwe and Ji, 2013 Panic-driven Austerity In The Eurozone And Its Implications http://baobab.uc3m.es/monet/monnet/spip.php?article524&var_recherche=De%20Grauwe%20and%20Ji