By Brendan Brown (auth.)
Euro Crash diagnoses the 3 deadly layout flaws in EMU as built by way of the Maastricht Treaty and analyses destiny most probably financial eventualities for Europe, demonstrating how the simplest of those often is the construction of a brand new slim financial union among France and Germany based on strict monetarist precept and with no eu imperative Bank.
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Extra info for Euro Crash: The Exit Route from Monetary Failure in Europe
A big question for the Austrian School is how practical policymakers should implement this prescription when the span of neutral or natural rates (across a range of maturities) might vary considerably over time and be hard to estimate with any precision. And what meaning should be given to ‘far out of line’. When an economy is in severe recession, ideally the normal self-recuperative forces in a capitalist economy should produce a path for interest rates which for some time would (with long-run money supply growth firmly anchored) be well below the neutral or natural level which would prevail in long-run equilibrium.
In particular, in view of the newness of EMU and public scepticism about the ECB’s likely success in avoiding inflation, there had to be an easily understandable target to measure (this success). Austrian ‘poetic’ concepts of monetary stability might have jarred with that purpose. It can well be doubted whether a sceptical public would have had patience with the sophisticated argument that monetary inflation need not show itself up as rising prices for goods and services but as rising asset prices, or that a rising price level for goods and services might not be symptomatic of monetary inflation.
In most cases, though, the temperature rise was from low temperate or even cool levels (as for France). In any event, the ECB in choosing to target the movement of a particularly simplistic definition of the price level (euro-area CPI), which excluded almost altogether the price of housing (whether in capital or rental terms), removed itself one stage further from housing market developments. ECB policymakers realized the problems of definition with euro-area CPI (and how it would fail to pick up a rise of residential space occupancy costs, surely an important component of the overall price level for goods and services) but made no urgent effort in the following years to bring about an improvement.