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Difficulty in Setting the Appropriate Euro Interest Rates

Now that the economies around the world are staging a recovery, the European Central Bank (ECB) will be expected to adjust its monetary policy, i.e. to accommodate its benchmark interest rates, to the new economic realities. However, unlike most other central banks, the ECB has a particularly difficult task of timing and scaling its interest rates adjustments. This is particularly so because its decisions are tailored for 12 different economies — jointly constituting the Euro monetary union—and not any individual economy of the unions member states. Hence, the ECB interest rate decisions are structured in such a way to promote the common economic interest of the area as a whole, even when it comes at the expense of the economy of the unions single member state.




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