The euro is a currency used by most of Europe as they all are part of the European Union which was first established because of the Treaty of Rome in 1957 as the European economic community. The euro is used as the primary medium of exchange in these countries excluding Bulgaria, Czech Republic, Denmark, Hungary, Poland, Romania, and Sweden being a part of the European Union. The euro is one of the most influential currencies in the world, it has various strengths but also has several weaknesses. I feel that the fundamental problem of the euro is its rigid monetary policy. This policy does not fit in with the local economic conditions. Due to this, it has become common for us to witness some parts of Europe prospering while others suffer from the debt crisis and high levels of unemployment. The monetary policy for the Euro and European Union is set by the European central bank (ECB), which is the central bank for 27 member states this often leads to disregard for countries facing a crisis as it has to govern the policy for the entire eurozone. The ECB enjoys independence from the control of any specific country's government. There is no independence for any individual state to craft the policies according to their problems. Due to this, the European Union has faced many problems like the European sovereign debt crisis, which was further worsened by the rigid policies of the ECB and the euro. Some might say that the policies did the exact opposite of what needed to be done in this specific situation as if inflation rises in a country and reaches record levels it would be no problem for any other nation as their central bank could print more money leading to devaluation of the currency, however, the independence of the ECB meant that printing money was not an option for eurozone governments. unemployment kept increasing and interest rates skyrocketed heading towards a collapse of the euro and the European monetary union as we know it.in the end, the ECB did help in the recovery of these nations however the cause of the problems was also ECB.
Every economy faces a set of problems, for example, Greece has a high sensitivity to fixed interest rates as most of its mortgages are on a variable interest rate system but being a part of the EU it could not control interest rates to benefit the country and its people. While countries like the UK made it through the 2008 financial crisis by introducing a quantitative easing program while the ECB waited till 2015 to introduce the same. A country's economy is highly sensitive to treasury bond yields, non-member nations again have the advantage as their central banks can buy these bonds to liquidate the markets and help the economy but the ECB does not buy member state-specific bonds because of which countries like Italy have suffered greatly because of high-interest yields. When inflation rises in an economy non-eu states can change interest rates to reduce it their regulators by the EU can't do so because it affects 19 other countries and is controlled by the ECB. For example, fearing high inflation in Germany, ECB lowered interest rates which came to be a positive move for Germany but a negative for the other member states. Due to situations like rising inflation and crisis, a nation's currency gets devalued but the member cannot decide the value of the euro as it will affect the others and the ECB would not do it. Another example of this is the constant bias by the ECB towards Germany. Germany has always had a sound monetary policy since WW2 and all the new member states have fixed their exchange rates to a German mark, this has made the monetary policy even more rigid and it has made it difficult for smaller nations like Italy, Greece etc. they have all faced high debts and unemployment while the Germán economy has always had a positive effect and has been prosperous. Due to these policies, the euro has been declining and is trading at its lowest point since December 2002. The depreciation of the euro against the dollar has been a staggering 16% and it has lost almost 4.4% of holdings. With inflation at record highs, the ECB cannot afford to be complacent. The risk of escalating market inflation expectations and the failure of the euro to find a floor could have more damaging consequences than a recession. By announcing the Transmission Protection Instrument (TPI) in July, the ECB has temporarily curbed the risks of a new sovereign debt crisis in the Eurozone. Rising government deficits as a result of the gas crisis, however, alongside political elections in Italy are risks that could bring sovereign spreads back into focus in the coming months. These problems could lead to a total euro collapse which will affect all of the members as well as the world economy, the ECB cannot afford this and neither can the member states, something has to be done and it has to be done now. The solution for this can be that the Europeans union regulate the ECB with a supervisory authority making sure that the apex body works in favour of all member states and not just bigger members so that others can also enjoy prosperity and not Have high levels of debt and unemployment. Another solution is that when facing an economic crisis there be a vote by all the member nations on what to do and make it mandatory for the ECB to authorize it. More solutions include having a fiscal authority scrutinizing the budgets and the debt ceilings of the nations, this authority will then report to the ECB and changes in the policy can be made as such. Another proposal was to introduce Eurobonds which would be regarded as stability bonds and could be provided jointly by the nations in case of a crisis. Another proposal was to transform the EFSF into the EMU which would provide these Eurobonds to the people and help the nations. In conclusion, the ECB has to be tackled with an introduction of proposals has to be done to prevent the collapse of the European economy as we know it.
