AVOIDING EURO CRISES

Avoiding Euro Crises



Avoiding Euro Crises

Introduction

The in-adequate policies, credibility of organizational structure and the political struggle between the member countries is a concern for the European monetary System. This is a question mark on the role of the European monetary system. The inadequate organizational structure and ideological frame work of the European monetary system is the main reason for the crises. There are several treaties in the European monetary system like Maastricht Treaty and the Stability and growth Pact. This is controlled by the ECB for the entire euro zone. The result of these treaties and pact was the amalgamation of the monetary and fiscal policy. This had major impact on the social and economic sector of the amalgamated countries.

This European System is one of the most autonomous and independent monetary system in the world. Yet there are internal grouping and politics going on in the system decision making. The ECB has highest degree of independence than the German Bundesbank although both of them function on the same definition of the monetary stability and financial principles. Thus, this huge independence and autonomy for ECB had raised several eyebrows and question is raised about the legitimacy of its decisions, since the norms of democratic accountability and transparency are compromised.

Discussion

Fiscal Crises in the Euro Zone

After the arrival of neo liberal economic ideology, particularly in the 60s for monetarism and amongst the theorist of the 70s are mostly linked to the doctrine of Milton Friedman's. There is a saying that inflation is always there since it is a monetary phenomenon. Thus central bank supervises it in the long run through independent monitory policy. So the creation of Euro is the result of following neoliberal economic ideology. Thus ideology theorist like Milton. Fredric, Anna and many others argue in favor of more power for the larger role of the market in economic activity and less role for the state. So, under monetarism and classical economies money is neutral in nature , inflation is the effect of the monetary expansion , due to demand shocks the real economy shifts back to the full employment. Core of the Euro structure, policies of ECB and legal arrangement is based on the liberal ideology.

The old central banks of these countries used to control the public finance and the budgetary processes of their own countries. After the arrival of the European union these central bank were left with few rights and that were just manage the administrative monetary and the finance only . Thus it has promoted fiscal issue in many countries of the zone. The case was different with the United Kingdom; it did not follow the same instruction and bailed many of its banks through different period of time. UK central bank also did many quantitative easing.

The fiscal crisis which had started recently in Greece is due to the doubtful integration of many countries in the Euro zone. The bailout package which was state sponsored did save some of the financial ...