By Brendan Brown (auth.)
Euro Crash diagnoses the 3 deadly layout flaws in EMU as built through the Maastricht Treaty and analyses destiny most probably financial eventualities for Europe, demonstrating how the simplest of those will be the production of a brand new slim financial union among France and Germany based on strict monetarist precept and and not using a eu crucial Bank.
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Extra resources for Euro Crash: The Exit Route from Monetary Failure in Europe
The Austrian critique leads on to a further accusation in the present indictment. a. , would be contrary to the aim of monetary policy – the ECB substantially raised the likelihood of serious monetary disequilibrium ahead (defined to include the symptoms of rising temperature in asset and credit markets). Indeed, allowing for ‘good’ price level fluctuations up or down related simply to the business cycle in which a recessionary phase might well last as much as two years, the notion of a two-year period for measurement purposes was palpably absurd.
The econometrics assumes stability of the underlying relationships estimated. The Austrians could concur with those monetary economists from other schools who argue that the most practical way forward would be to target high-powered money (defined as the total of bank reserves and currency in circulation; high-powered money is the same as what is sometimes described as monetary base), while allowing as much scope as feasible for markets to determine even short-term interest rates (which would be very volatile).
In any event, the ECB in choosing to target the movement of a particularly simplistic definition of the price level (euro-area CPI), which excluded almost altogether the price of housing (whether in capital or rental terms), removed itself one stage further from housing market developments. ECB policymakers realized the problems of definition with euro-area CPI (and how it would fail to pick up a rise of residential space occupancy costs, surely an important component of the overall price level for goods and services) but made no urgent effort in the following years to bring about an improvement.