ECB & EMU

ECB & EMU

Independence of the European Central Bank

Introduction

Monetarism proud achievement was central banks political independence. This was seen in Europe as Criteria by EU Maastricht. Bank of England granted independence in 1997 and European Central Bank formation in order to support Euro zone area. Various kind of Independence has been given in the entire world from North America to South Africa and Japan. Worldwide recession and financial crisis along with impressive changes has ended the world trade and flow of payment. Hence, Central bank political independence is necessary for price stability as well as the proper functioning of the EMU. This paper will be in favour for the statement that political independence of the European Central Bank - ECB is necessary for the proper functioning of the EMU.

Discussion

The following discuss will clear that the political independence of the ECB is necessary for the proper functioning of the EMU.

Political Independence of the ECB

European Central Bank is one of the world's central banks with greater autonomy, for many, European Central Bank is the independent central bank model. European legislation guarantees, through different mechanisms, the highest level of autonomy gives central bank plenty of opportunities, privileges and advantages to the performance of its functions. Steeped in this particular autonomous status, the European Central Bank performs the function assigned to it by the treaties that define and implement the monetary policy, with the primary objective of maintaining price stability and, secondarily, to support the general economic policies in the Union (Charles A., Paul L., & Kovanen A., 1998, pp. 38).

The mission is with a high technical content, but with an equally important political element. The definition of monetary policy involves political decision making process that makes the European Central Bank to change monetary instruments at its disposal. Economic and monetary union is a group of countries that have adopted a currency which can be used in their unique economic markets to form a free trade area. The main economic and monetary union in the world is that of the European Union, that is to say, the euro area, which is often referred to as simply economic and monetary union. As it is a union, its interference can leads to the decline in the overall market condition of the country (Kregel, 1993, pp. 667).

What is the role of the central bank?

The central bank of a country is an institution which decides how the policy will apply in the country. Its role is the following:

Ensure the issuance of fiat money and help set and interest rates: MMR (money market rate).

Supervise the functioning of financial markets; ensure regulatory compliance risk (solvency ratio) financial institutions mainly banks.

Acting as banker of last resort in case of systemic crisis and avoid the bankruptcy of a bank and financial crisis of solvency or liquidity.

This institution must be independent of political power and executive completely as is the European Central Bank (ECB), or as the Federal Reserve of the United States ...