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    Task 2 Monetary Policy in The EU

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    ekateryna249
    The euro is issued by the European Central Bank and central banks of Eurozone countries. The ECB manages the monetary policy of the Eurozone to maintain a 2% inflation target. Unlike other systems, the European Union uses a Universal Banking Model that allows commercial and investment banking activities within the same institution. While this increases competitiveness, there are also risks if losses occur. Calls for separation reform were acknowledged but not acted upon. The ECB claims oversight through the Single Supervisory Mechanism but there are concerns about consumer safety due to the unelected nature of the ECB governing council.

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    Task 2 Monetary Policy in The EU

    Uploaded by

    ekateryna249
    21 views3 pages
    The euro is issued by the European Central Bank and central banks of Eurozone countries. The ECB manages the monetary policy of the Eurozone to maintain a 2% inflation target. Unlike other systems, the European Union uses a Universal Banking Model that allows commercial and investment banking activities within the same institution. While this increases competitiveness, there are also risks if losses occur. Calls for separation reform were acknowledged but not acted upon. The ECB claims oversight through the Single Supervisory Mechanism but there are concerns about consumer safety due to the unelected nature of the ECB governing council.

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    Monetary Policy in the EU

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    Task 2 Monetary Policy in the EU

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    The euro is issued by the European Central Bank and central banks of Eurozone countries. The ECB manages the monetary policy of the Eurozone to maintain a 2% inflation target. Unlike other systems, the European Union uses a Universal Banking Model that allows commercial and investment banking activities within the same institution. While this increases competitiveness, there are also risks if losses occur. Calls for separation reform were acknowledged but not acted upon. The ECB claims oversight through the Single Supervisory Mechanism but there are concerns about consumer safety due to the unelected nature of the ECB governing council.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    21 views3 pages

    Task 2 Monetary Policy in The EU

    Uploaded by

    ekateryna249
    The euro is issued by the European Central Bank and central banks of Eurozone countries. The ECB manages the monetary policy of the Eurozone to maintain a 2% inflation target. Unlike other systems, the European Union uses a Universal Banking Model that allows commercial and investment banking activities within the same institution. While this increases competitiveness, there are also risks if losses occur. Calls for separation reform were acknowledged but not acted upon. The ECB claims oversight through the Single Supervisory Mechanism but there are concerns about consumer safety due to the unelected nature of the ECB governing council.

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    Download as docx, pdf, or txt
    of 3

    6/03/2024

    TASK N.2
    Do a little research on monetary policy in Europe. Who issues the coin? Who is the
    owner of the coin?What is the role of a Central Bank? Why is there no longer a
    difference between commercial and investment banks?

    Euro, a currency that most people in the EU use daily, has become a habitable part of our
    daily lives. Young people like me do not remember a time before the euro, but what is the
    euro’s backstory, where did it come from, and who manages it? This short report will explore
    these and other questions that focus on banks, including the European Central Bank (ECB).

    There is a common misconception that the euro is used in all EU states. This is not the case as
    there are some exceptions. The Euro is the official currency in 20 out of 27 member states of
    the EU; those countries constitute the so-called Eurozone area (EU 2024a). The euro was first
    introduced on the 1st of January 1999, as a result of the Maastricht Treaty of 1993, the goal
    of which was to create an economic and monetary union for the EU, with a few exceptions
    like the UK and Denmark (ECB 2024a). Currently, the euro is issued by the ECB and the so-
    called Eurosystem, composed of the central European banks of countries in the Eurozone that
    have accepted the euro as their main currency (EU 2024b). The ECB and the central banks
    that are part of the Eurosystem ultimately own the euro coin and are in charge of issuing,
    printing, minting, and distributing the coin (ibid.).

    However, the Governing Council of the ECB is the body that manages the monetary policy in
    the EU (ECB 2024b). The Governing Council consists of six members of the Executive
    Board of the ECB and the governors of the national central banks of the Eurozone countries.
    As outlined by the ECB, the monetary policy "influences how much you have to pay to
    borrow and how much interest you receive on your savings." The EU’s goal is to keep
    inflation at 2 percent to maintain price stability, so this is what the monetary policy focuses
    on (ibid.).

    The monetary policy is set every six weeks, and the decisions are further explained during a
    press conference by the president and the vice president of the ECB. The ECB uses interest
    rates, open market operations, and other non-standard measures to set the monetary policy.
    Moreover, the ECB regularly conducts research and publishes reports that support its
    monetary decisions. This allows for a detailed understanding of the economic situation in the
    Eurozone and the basis for the decisions of the ECB (ibid.).

    Lastly, in addition to issuing the euro and implementing monetary policy, the ECB is also
    responsible for the supervision of significant banks in the Eurozone area through the Single
    Supervisory Mechanism (SSM), which works to ensure the stability and fairness of the
    banking sector (ibid.).

    1
    To ensure competitiveness on a global scale and diversification of banking income, the EU
    has maintained a Universal Banking Model for the ECB and the Eurozone (Liikanen et al.
    2012: 89). Typically, commercial and investment banks are separated to protect the
    commercial banks used by people daily (ibid.). This can be seen in the United States and the
    United Kingdom where legal separations are put in place (ibid.). This is because high-risk
    investments can go seriously wrong, endangering people’s money that they keep in a
    commercial bank if a loss occurs. Governments typically enforce a legal separation between
    the two types of banks, so that an investment bank cannot be commercial at the same time
    and the other way around. The EU, on the other hand, follows a Universal Banking Model,
    which allows banks to engage in all kinds of activities, including commercial and investment
    practices (idem.: 89).

    In 2012, there was a call for EU reform of the Universal Banking Model by Michael Barnier,
    who was the EU commissioner at the time (Munzer and Pelger 2023: 1-2). He mandated an
    expert panel to make a report that would evaluate the need for banking separation reform.
    The Liikanen report produced in 2012 concluded that this separation is indeed necessary and
    other EU bodies agreed; however, no further reform was established (ibid.). Despite the need
    for banking separation as found by the report, the ECB claims to oversee the operations of
    Eurozone banks through the SSM and effectively protect customers despite the lack of a clear
    separation.

    The Universal Banking Model is maintained because it is beneficial as it allows banks to be


    more competitive on a global scale and more flexible and efficient (Liikanne et al. 2012: 89).
    However, there are also problems with this approach as discussed above. Despite the SMM
    oversight, the ECB does not guarantee safety, especially because its Governing Council is not
    elected (Ryan 2016). This poses a danger to consumers and their savings if something were to
    go wrong.

    In conclusion, this report has explored the history of the euro, examining how it's issued,
    owned, and managed, along with other insights about the banking system in the EU. Since the
    euro’s introduction in 1999, the Euro has become an integral part of daily life for EU citizens.
    Currently, the Euro's monetary policy is managed by the European Central Bank (ECB),
    whose aim is to maintain price stability, keeping inflation at two percent.

    The ECB also ensures banking stability through the Single Supervisory Mechanism (SSM).
    Unlike the United States and the United Kingdom, the EU follows a Universal Banking
    Model, allowing banks to engage in investment and commercial activities at the same time.
    Despite the model’s benefits in global competitiveness, concerns regarding consumer safety
    arise. The ECB claims oversight, but the unelected nature of its governing council poses
    potential risks. Calls for separation reform were acknowledged but not acted upon. In
    summary, the report highlights the Euro's significance, its management, and the challenges of
    the Universal Banking Model, emphasizing the need for ongoing evaluation.

    Bibliography
    2
    (EU) European Union (2024a). Official EU Currency. Brussels: EU.

    (EU) European Union (2024b). The Euro. Brussels: EU.

    (ECB) European Central Bank (2024a). Five things you need to know about the Maastricht
    Treaty. Frankfurt: ECB.

    (ECB) European Central Bank (2024b). Monetary Policy. Frankfurt: ECB.

    Ryan, J. (2016). “The European Central Bank: A Central Bank Operating In A Democratic
    Void”, Social Europe, June 24: 1.

    Munzer, M, and Pelger, C. (2018). “Maintaining the Universal Banking Model: An


    Institutional Theory Perspective on the Endogenization of a Transnational Post-Crisis
    Financial Market Reform”, Critical Perspectives on Accounting, 95(1): 35-54.

    Liikanen et al. (2012). High-level Expert Group on reforming the structure of the EU
    banking sector.

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