euro

Tight monetary policy in the EU

Tight monetary policy in the EU

Tight monetary policy implies the Central Bank is trying to reduce the demand for money and limit the pace of economic expansion. A tightening of monetary policy, could involve an increase in interest rates. – Higher interest rates increase the cost of borrowing and discourage investment and consumer spending. A tightening of monetary policy would be appropriate in a period of positive economic growth and rising inflation, above the inflation target. Europe has neither. The Eurozone is facing an inflation rate…

The need for a higher inflation target in the EU

The need for a higher inflation target in the EU

The ECB inflation target is 2% – ‘it aims to maintain inflation rates below, but close to, 2% over the medium term. ‘ However, some economists argue that in the current situation, the ECB should have a higher inflation target of 3-4%. The main reason for having a higher inflation rate would be to prioritise economic growth and help to reduce unemployment. Higher inflation would also help to contain and reduce government debt to GDP ratios – without excessive austerity. Having a higher inflation rate will be resisted by many other economists…

Is the Euro really a failure or is it a failure of policy?

Is the Euro really a failure or is it a failure of policy?

Readers Questions: Could you not also argue not that the Euro is a failure but that it’s members/ECB are pursuing the wrong policy? Predictions of the death of the Euro seem to have been much exaggerated & surely Europe has the potential to be a world economic superpower to rival the US or China? It is an interesting question, and to some extent inappropriate policy is a considerable factor in the ongoing European difficulties. However, there are still structural problems surrounding the Euro, which make economic stagnation more…

The great Europe debate

The great Europe debate

The rise of UKIP and Euro-scepticism in the UK inspired me to have another look at an old blog post – Benefits of the European Union. I’ve spent the past four years criticising the economic policy of the EU, and more specifically the ECB. There are may good reasons to be dissappointed at the EU in recent years. But there is always a danger that people can lose any sense of perspective and see the EU only as an unmitigated bureaucratic disaster more reminiscent of the Soviet Union than…

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Euro revision notes

The Euro is the single European countries adopted by 18 out of 28 EU countries. The UK has not joined. The Euro involves:Common currency Common monetary policy – Eurozone interest rates set by the ECB in Brussels. Some fiscal rules, e.g. The Fiscal Compact (2012) limiting the amount of government borrowing (a balanced budget of less than 3% of GDP)The Euro is the second largest reserve currency in the world after the US Dollar. Benefits of the EuroLower transaction costs for trade, tourism and consumers. Greater price transparency (leading to more price competition and…

France vs UK recovery

France vs UK recovery

Useful post from Paul Krugman about a comparison between the French and UK recoveries. It stems from comments by a Conservative cabinet minister that ‘the French economy is being run into the sand.’ For those who can’t get past the NY Times paywall, I’ll post the two graphs here.UK and France since 2010The French economy is forecast to grow by just 1 per cent this year, according to OECD forecasts, compared to…

The depth of the European recession

The depth of the European recession

Interesting graph which shows the depth of the EU recession compared to the great depression of the 1930s. Source stats | via KrugmanUK recession compared This graph is from the start of 2013. Since, then the UK economy is showing signs of  picking up. But, it is still worth bearing in mind the length of the decline in GDP since the start of the recession.

Causes of Europe’s deflation problem

Causes of Europe’s deflation problem

The European Union is facing the prospect of a serious bout of deflation (or at least, very low rates of inflation / disinflation) Deflation occurs when prices fall. But, very low rates of inflation are considered to raise problems associated with deflation. In the Eurozone, the main index of inflation has fallen to 0.7% –  This is well below the ECB’s inflation target of 2%. Some regions and countries in the Euro, such as Greece are already experiencing deflation. In Greece prices fell 1.8% last year and the consumer…