Business Briefs

Economic & Market Considerations: Monetary and Fiscal Policy

A single currency results in greater stability. A fixed exchange rate system between trading partners helps both firms and households plan for the future. Additionally, a single currency reduces the transaction costs of exchanging money and makes prices within the eurozone more transparent, aiding competition and best value. For economic and monetary union to work within the EU, a degree of convergence and coordination is necessary. Such coordination should stop any member state free-riding on the prudent economic policies of the others. In the United States, this is achieved through a single fiscal policy and strong political union. In the European Union, mechanisms needed to be put in place to ensure that a single interest rate and exchange rate would be suitable for all member states.

  • Rules of the Game
    • Pre-Euro: Maastricht Criteria
    • In the Euro
    • European Central Bank
    • Stability and Growth Pact
    • Fiscal and Monetary Coordination
  • A Critique of the SGP


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