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The Euro (Chap. 10) (ECB Key Features (instruments: interest rate at which…
The Euro (Chap. 10)
ECB Key Features
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does not directly finance member country's fiscal deficits or provide bailouts, in order to prevent the use of monetary policies for other goals
monetary policy decisions are held at ECB Governing Council meetings twice a month; consists of central bank governors and 6 ECB exec board members; policy decisions are made on a consensus basis
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key points
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regions should only employ a common currency if they are well integrates and face symmetric economic shocks
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Marshall Plan: US stepped in to economic crisis with the Marshall Plan; most successful recon plan ever; required that funds be allocated by a European High Authority composed of country reps
Treaty of Rome: 1957; signed by 6 countries, agreement to create the European Economic Community for more in-depth economic cooperation; grew into the European Communities
Exchange Rate Mechanism (ERM): fixed exchange rate based on bands, defined each currency's central parity against a basket of currencies
European Central Bank (ECB): administered the Euro, took control of monetary policy in all Eurozone countries
convergence criteria: rules for admission into the EU, all 5 must be satisfied for entry
rules are divided into two parts: 3 rules requiring convergence in nominal measures relating to inflation; 2 rules requiring fiscal discipline to prevent inflation
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Stability and Growth Pact: the concrete EU answer to concerns on the contunuation of budgetary discipline in the EMU
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