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"European Monetary Union without a Banking or Fiscal Union cannot succeed." Please critically evaluate this statement with s - Essay Example
Author : lueilwitzsterli
Finance & Accounting
Pages 6 (1506 words)
European Monetary Union without Banking or Fiscal Union Cannot Succeed Introduction European Monetary Union (EMU) was formed with the sole aim of providing financial stability to the member countries. The European Central Bank (ECB) became an integral part of the EMU and began setting monetary policy for the EMU…
Before going into detail as to why and how fiscal and banking union can facilitate success of monetary union, it will be prudent to delve deeper into the aspects that are responsible in creating a state of financial instability in the European Union. It is worth noting that unlike the United States, fiscal measures are not exercised by the EMU and that is where the major crux of the issue lies. Genesis of Crisis EU witnessed a sovereign debt crisis and an unprecedented banking crisis in the recent years. It is important to note that both did not surface in isolation but they were interrelated. Sovereign debt crisis had its genesis in poor fiscal management over several years violating Maastricht Treaty. A fairly large number of Spanish banks are afflicted with their own sovereign debt and because of that have lost their substantial Tier I capital. Thus, banking crisis has its roots, albeit in an indirect way, to the fiscal mismanagement. It is also true that the US subprime crisis did contribute to the woes of the European banks. When seen in terms of the fiscal mismanagement, the genesis of debt crisis is old. ...