The future of the Euro and European Central Bank : an honors thesis (HONRS 499)

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Pritchard, Tyler D.
Frankland, E. Gene
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Thesis (B.?.)
Honors College
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The European Central Bank is the key determiner of all monetary policies of the Eurozone's member states. Its main stated policy goal is to effect price stability among the euro area by control of interest rates, the exchange rate, and fiscal policies. The ECB, however, has often come under criticism by its member states over the strict rules set in place on them by the Stability and Growth Pact. Currently, that attack is being led by France's President, Nicolas Sarkozy, who has vehemently called for member states to be able to pierce the independence of the ECB and have some say in monetary policies of the euro area. These restrictions, as well as the idea of one central bank acting beneficially on behalf of fifteen members, fuel this belief that the ECB may not be flexible enough to handle the problems of individual members and that it will not allow for continued success under its current state. Despite these questions, the ECB has proven to be successful in allowing the euro to become very strong, while also allowing most Eurozone members to experience record lows of inflation, and will continue to be effective as the central bank of the single market area. In order to support this conclusion, I give a brief history of the euro, the organizational framework, goals, and policies of the ECB, and the current arguments in favor and against the ECB.