Economic and Monetary Union, Macroeconomic Policy in the UK - Coursework Example

The introduction of the Euro led some countries to consider the adoption of some form of exchange rate target and to use the Euro as an anchor currency. This, therefore, is the obligation of the European central bank obligation. In principle, there might be two complementary reasons for doing so.

Some countries might decide to pursue such a policy because the Euro area is a major trading partner. In this case, exchange rate stability vis--vis the Euro is regarded as desirable to foster trade and commerce. Other countries might want to use the Euro as an anchor currency to basically import the Euro area's stability-oriented policies and environment. This is particularly relevant for some of the accession countries. At the moment, the Euro already plays some role as an anchor currency in 56 countries, which together represent 4% of world GDP. (Alesina, A, (1988).
The s Solutions adopted range from very strict, - or even full - links to the Euro (for instance, the use of the Euro as legal tender, or other forms of "Eeuroisation") to looser forms of anchoring (such as peg arrangements). The Eurosystem neither pursues the internationalization of the Euro as an independent policy goal nor does it foster or hinder the process. In other words, if countries outside the Euro area want to adopt an exchange rate target featuring the Euro, they are free to do so, provided that such an arrangement does not impose any obligations on the Eurosystem.

Such obligations, for instance, the requirement to intervene in the foreign exchange markets, might be incompatible with the ECB’s primary objective to maintain price stability. Alesina, A. and R. Perotti (1997) 

In order to provide a comprehensive analysis of what EMU membership might mean for UK macroeconomic policymaking, this study considers the overall frameworks for policy and not just the decision-making structures. The term ‘policy framework’ is used in this study to include the objectives of policy and the principles underlying them, the assignment of instruments to objectives, the institutional arrangements, the operating procedures and the policy decisions are taken.