The Euro. One Currency Many Cash Policies.
Grasping the Monetary policy concept with, the Euro Zone.
The most ambitious project of the European Union
much more profound than the EuroFighter is at risk today. Monetary policies are
going to play a crucial role in revitalising the euro. This article is going to
touch on the supply, interest rates and initiatives to boost economic growth that are taking place through this policy. These
policies will have a major contribution to the current euro zone crises. Trying
to understand the policies being adapted and linking monetary policy concept with this real case study.
The supply of the Euro is controlled by the
European Central Bank (ECB).Currently headed by Mr Mario Draghi. This banker has an extremely
challenging job on his hands. The graph below shows the money released into the
market by ECB and its circulation.
The graph above gives us an idea of the amount of bank notes in circulation.The data is from July 2009, keep in mind the euro
crises surfaced at about the same time. As we take an overall view of the graph, take note of the general trend of increase in the circulation of the Euro. This
indicated that from July 2009 to July 2012 the ECB was adopting an expansionary
monetary policy. This sort of policy usually involves increasing the money
supply. Take a look at the the line right after July 2012 you will notice there is a downward trend.This may be an indication that the ECB is now concerned about inflation.Its about time they put in some measures as the CPI for the third and fourth quarter was above the predicted level.The notorious riots by the Europeans have also made this very clear.
As of October 2012 the Euro-zone interest rates are at 0.75%.The prime reason to hold the rate is to curb inflation,specially the rise in CPI.Which for peculiar reasons is recently violently spiking.The reasons are not that peculiar considering the rising commodity pressure and excessively weak aggregated demand.Among other reasons the ECB is also trying to promote economic growth by holding rates down.It hopes to make borrowing cheap which may convince people to start new business or increase consumption.The later will help deal with low aggregated demand.The hope of a much expected recovery in real terms in the coming quarter is now disintegrated with regards to Mr Draghi's decision to hold the interest rates.The graph below shows the Harmonised Index of Consumer Prices (HICP) on monthly bases from October 2008 to October 2011.
The above graph shows how the HICP is fluctuating and this directly impacts price stability.Price stability is another crucial component of the monetary policy.The ECB measures price stability as a year-on-year increase in the HICP. Currently the Index lies at 2.5 and has been fluctuation within 2.3 and 2.7 since the start of 2012.It is more or less the same as the CPI.The price stability in the euro zone is not very good. Price stability in the midst of a crises is something extremely difficult to attain.It is expected to worsen as oil prices will start to recover due to the winter.The general trend seems more or less in line with what you would expect while a crisis that seems to stretch on forever.
this author expects a mature audience...i couldn't understand some of the words...
ReplyDeletewow this is interesting i thought everything in EU would became super cheap due to the euro crises i guess its not....
ReplyDeleteI believe no matter what happen to the Euro it was and will be a great success story to learn from....n we need more common currencies....remember Euro was the second most strong and stable currency after the USD.
ReplyDeleteThe recession is due to cyclical unemployment and the normal business cycle as suggested by the keynes Models. Though the Euro Zone has been a tremendous mistake to start with, the monetary policy will just solve bits of the problems. In other words, monetary policy will just solve the symptoms but not the problem.
ReplyDeleteOn the other part, trying to make use of both monetary and fiscal policy on different time basis factor might change the whole recession. A "Tight Money" fiscal policy system might solve the issue but i do agree that Monetary will reduce the problems in the short-run.
Good Job!!
The objective of the article is not to give a reason for the Euro Crises it is to outline the use of monetary policy in the crises. The role it plays and trying to explain a theoretical concept with a case study.Thank you for your comment!
DeletePS. Debt,excessive government spending and improper financial planing are the root cause of the Euro Crises NOT cyclical unemployment.
No Cyclical unemployment is always the principal reason and main one that cause a recession. This is why recession occurs on respectively with a pattern of 10 years. Excessive spending is methods used by Government to REGULATE the recession and is not the primary cause of recession else it would have too easy to regulate the economy system if they made the mistake of spending...
ReplyDeleteDebt is just an Addon for the recession like a catalyst that deepen the recession due to high spending but not the primary reason, this shows a expansionary fiscal policy. And normally this method is good for the economy to expand if economy is contracting to much on spending then there would be no investment occurring etc..
But i would like information on how companies are facing the situation on their and what strategies are being undertaken by small firms to survive. I would really like such article.
Regards,
Jeekeshen Chinnappen,
President of HIEQS Group