Monetary Policy and Central Banking

Monetary Policy and Central Banking

New Directions in Post-Keynesian Theory

Edited by Louis-Philippe Rochon and Salewa ‘Yinka Olawoye

Divided into two parts, this book presents a detailed, multi-faceted analysis of banking and monetary policy. The first part examines the role of central banks within an endogenous money framework. These chapters address post-Keynesian interest rate policy, monetary mercantilism, financial market organization and developing economies. In the second part of the book, the focus switches to the analysis of the financial crisis that began in 2007. The chapters in this section discuss the role of central banks in times of crisis.

Chapter 10: The Euro and its Guardian of Stability: Fiction and Reality of the 10th Anniversary Blast

Jörg Bibow

Subjects: economics and finance, financial economics and regulation, money and banking, post-keynesian economics

Extract

Jörg Bibow* 1 INTRODUCTION As the tenth anniversary of the euro’s launch neared, European Union (EU) policy makers felt they deserved to be in celebratory mood. Economic growth in the core of Europe had finally picked up in 2006 and the dark clouds that had appeared in the seemingly bright blue sky since August 2007 were believed to pass by Europe’s “zone of stability” thanks to diligently pursued “stability-oriented” macroeconomic policies that had steered the union away from “global imbalances” elsewhere in the world economy. EU Commissioner for Economic and Monetary Affairs Joaquín Almunia (2008) probably captured the mood of European pride about being a “pole of stability for the global economy” well when he declared in a foreword to the official EMU@10 success story volume that must have been written early enough in the year: A full decade after Europe’s leaders took the decision to launch the euro, we have good reason to be proud of our single currency. The Economic and Monetary Union [EMU] and the euro are a major success. For its member countries, EMU has anchored macroeconomic stability, and increased crossborder trade, financial integration and investment. For the EU as a whole, the euro is a keystone of further economic integration and a potent symbol of our growing political unity. And for the world, the euro is a major new pillar in the international monetary system and a pole of stability for the global economy. As the euro area enlarges in the coming...

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