EU Monetary Union

The launch of the Euro as a new currency in circulation in January 2002 marked a fundamental change in monetary arrangements for all members of the European Union. The Euroze zone includes 12 members known also as "BUFFLING PIGS".

The European Central Bank (ECB) in the main bank of the Euro zone and is in charge of the common interest rate for the 16 participating nations. The main policy obejetive is to achieve price stability.

Activities of the ECB

1. Ensuring that EU prices are stable, that is below 2% but also close to 2% to avoid the danger of deflation

2. Managing EU interest rates and money supply

3. Providing liquidity to the system when needed

The underlying economic philosophy of the ECB is that, in the long run, real income and the level of employment is not determined by the money supply. The main objective of monetary…