Challenges for monetary policy in Euroland

Abstract:

Despite the economic and political success of its launch, the challenges ahead for the euro are formidable. This article analyses some of these challenges, focusing particularly on the monetary policy strategy of the European Central Bank (ECB) and on the implications of enlargement of the monetary union to up to 27 Member States. The monetary policy strategy and inflation target of the ECB are criticised for being unrealistic and possibly damaging to the ECB's credibility. It is shown that unless the mechanisms for taking interest rate decisions are rethought, there are risks that the wrong decisions will be taken after enlargement.