Essay on "European Central Bank Role"
Essay 3 pages (1093 words) Sources: 3
[EXCERPT] . . . .
European Central BankRole of European Central Bank in the current European Financial Crisis
The Great Financial Crisis of 2008 has impacted the western world in an unprecedented way and has left many countries in the European Union scrambling to manage their debts. The impact is more evident in the European Union, mainly because it is a conglomerate of different countries that gave up their currency to accept the common Euro. Some of the most affected countries include Spain, Italy, Greece and Ireland, though its impact has spread to other stronger economies such as France and Germany as well.
Since the beginning of this year, the bonds of Italy, Spain and France have been sold in batches at much lower rates and for the first time in recent history, the Standard & Poor downgraded its AAA rating for France. Many countries in this region are looking at another recession that is expected to be more severe than the previous one. Moreover, the strong austerity measures in these countries are not public-friendly as is evident from the recent election results in France and Greece where the public have supported the anti-austerity candidates. In the light of these happenings, the European Central Bank's role has become crucial because most governments look to it for bail-out.
To counter this crisis, the ECB has taken many steps. In late December last year, the bank began to provide emergency loans to numerous European Banks spread across different countries to the tune of hundreds of billions of euros to help them to rescue their respective national governments. Most of these loans are interest-free and it was done in an attempt to p
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By doing so, the ECB has followed the steps of its U.S. counterpart, the Federal Reserve. Though most countries in the EU criticized the U.S. For its reckless bailout and the resultant inflation problems it posed, they realize that it has worked wonders for the U.S. economy and has helped it to bounce back slowly and steadily. So, they followed a similar strategy and the results have proven to be fruitful. Currently, Spain's 10-year bonds have an interest of around 5.5% which is way less than the 7% it touched in November while Italy has reduced its interest rates from 8% to around 5%, thanks to these efforts by the ECB (Kulish, 2012).
Moreover, the ECB reduced the interest rate to 1% in December to further boost the European economies. These measures have increased the inflation rate to above 3% while the ECB's mandate is to keep it to 2% or less. Mr. Draghi, the President of the ECB, believes that these measures are essential to accelerate the economies and said that a weaker economy could bring down the inflation rates (Blackstone and Gauthier-Villars, 2011).
This infusion of cash into the market has provided a much-needed breathing time for the national governments and they have to work on ways to repay these bonds when they become due in three years. At least for now, this measure taken by the ECB has helped to prevent a financial collapse and has given another chance for… READ MORE
Quoted Instructions for "European Central Bank Role" Assignment:
“What Role Should the European Central Bank Play in the Current European Financial or Public Debt Crisis
With regard to relevant reading, it is part of this research exercise that students conduct independent searches
for high quality literature pertinent to the topic. Both essay topics concern issues of major public interest and
controversy in recent times ***** in the context of the complex question of how governments properly and
adequately should have responded, and should continue to respond, to the Great Financial Crisis of 2007
forward and its consequences. Beginning points for reading are:
1. The website http://yanisvaroufakis.eu provides extensive commentary on the euro zone crisis and the
role of the ECB; but note that Professor Varoufakis*****s position is at odds with the ECB*****s own view of its
role.
2. B. Bernanke (2011) *****˜The Effects of the Great Recession on Central Bank Doctrine and Practice*****, at
http://www.federalreserve.gov/newsevents/speech/bernanke20111018a.htm . For a more critical view
of the issue, see the symposium on *****˜The Future of the Fed***** at http://www.rooseveltinstitute.org/futurefederal-reserve .
For further and independent views, examine commentary in quality news media outlets, like the Financial
Times and the New York Times. The online journal, The Economists***** Voice also has useful contributions,
particularly with regard to the US. Finally, reading deeply, rather than widely, is to be preferred.
How to Reference "European Central Bank Role" Essay in a Bibliography
“European Central Bank Role.” A1-TermPaper.com, 2012, https://www.a1-termpaper.com/topics/essay/european-central-bank-role/37705. Accessed 5 Oct 2024.
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