When a country joins a monetary union, it gives up its monetary policy stance that is tailored to its needs, i.e. the level of interest rates and money supply that is appropriate for its economy. The resulting common policy is a one-size-fits-all policy. Booming regions, with high inflation, have the lowest interest rate in the monetary union, thus reinforcing the boom; countries in economic difficulties, with low inflation, have the highest interest rates, thus weakening the economy. Other policies are needed to balance this adverse monetary policy stance. Fiscal policies do the trick but are much weaker than monetary policy …read more
Source: European Public Affairs
