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The Euro
Who has the most interest - UK or Europe?
The ECB is the central bank for all the countries involved in the Euro. Its prime responsibility is the maintenance of price stability. It is therefore responsible for setting monetary policy for all those countries that are part of the single currency. To maintain the single currency needs one interest rate. That rate is set by the Governing Council of the ECB who meet twice a month
to discuss it. They have set an inflation target of 2% or less and set interest rates to achieve that target. They also have a target for money supply growth (M3 measure) of 4½%.
Once they have set the interest rate it is mainly up to the National Central Banks to maintain that rate in their own countries. They do that by using "open market operations". The Banks make sure that there is a shortage of liquidity (in other words forms of money close to cash) in the system and they then provide the necessary liquidity on their terms.
It is true that current interest rates in the Euro zone would have risked an inflationary boom in the UK. However, if we want to aim to influence monetary policy at the European level we need to be a part of it. Once we joined the Euro the Bank of England would automatically be involved in the interest rate decision. Lower interest rates would certainly be a help to promote
investment in the UK and this should contribute to long-term growth. If we stay out with higher interest rates this will be a major deterrent to inward investment into the UK.
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