oussama94
05-28-2017, 23:19
Yet the euro is not without its limitations. Leaving aside political
sovereignty issues, the main problem is that, by adopting the euro, a nation
essentially forfeits any independent monetary policy. Since each country’s
economy is not perfectly correlated to the EMU’s economy, a nation mightfind the ECB hiking interest rates during a domestic recession. This is especially
true for many of the smaller nations. As a result, countries try to rely
more heavily on fiscal policy, but the efficiency of fiscal policy is limited
when it is not effectively combined with monetary policy. This inefficiency
is only further exacerbated by the 3 percent of GDP limit on budget deficits,
as stipulated by the Stability and Growth Pact.
sovereignty issues, the main problem is that, by adopting the euro, a nation
essentially forfeits any independent monetary policy. Since each country’s
economy is not perfectly correlated to the EMU’s economy, a nation mightfind the ECB hiking interest rates during a domestic recession. This is especially
true for many of the smaller nations. As a result, countries try to rely
more heavily on fiscal policy, but the efficiency of fiscal policy is limited
when it is not effectively combined with monetary policy. This inefficiency
is only further exacerbated by the 3 percent of GDP limit on budget deficits,
as stipulated by the Stability and Growth Pact.