Monetary and Fiscal Policy in the Euro Area - Essay Example

At its beginning stage, in 1990 the EU has made the free capital movement within the euro area and formation of a single market certain. In the second stage the EU introduced the formation of the European Monetary Institute (EMI) in the period of 1994-1999, which is the pioneer of the European Central Bank (ECB). The third and final stage has been traced by introducing the euro currency along with a single and common monetary policy of the European Central Bank in the euro area. It is noted that though each of the member of the EU are also the elements of the EMU, however, the euro area does not consist of all the EU countries.

Only the members who have considered the euro as their currency have been incorporated in the euro area. Only these countries are liable towards the ECB’s monetary policy. Except the UK and Denmark, all the member countries of EU have been entailed to become a part of the euro area by meeting the criteria regarding the specific economic convergence standards. The policies regarding the economic surveillances under the framework of the EMU demand that all members should guarantee the harmonization of their economic policies.

Beside they are required to grant their mutual supervision of the union and reveal the regulations related with their financial as well as budgetary policies. With the provision of monetary policy, the stability of the single currency, the euro, is supported and emphasized. However, considering the strategy requirements towards the arrangements of pensions, labor or capital market, the fiscal policy, the policies of taxes and expenditures, remains under the control of the individual state governments of the member countries.

But for functioning of the EMU directions effectively in accordance with its requisite, a supportive public finance is necessary along with supple and assimilated labor, product, and financial markets. Governments of all the member countries are required to sustain their