European Economic and Monetary Union (EMU)-Italy Term Paper

European Economic and Monetary Union (EMU)-Italy - Term Paper Example The German dominance in the European Union may have caused a lot of trouble in the policy implementation for economic terms. More than this, the recent recession is believed to have an impact on the economies of the world. This paper wishes to depict the mission and structure of the Economic and Monetary Union (EMU) in creating a direct connection towards the detrimental effects the cluster has made to Italy. Moreover, the economic state of Italy will then be described based on the output of fiscal and monetary policies of the country and aligned with the trade and foreign investment scheme. The European Sovereign Debt Crisis will then be discussed focusing on Italy’s experience during the crisis, and the causes of the crisis will also be explicated. Finally, a conclusive remark, which states the general perspective of the researcher, will be sighted in the conclusion. 2.0 Mission and Structure of the Economic and Monetary Union (EMU) The greatest problem that was faced by the European nations centered on how to build a sole market for capital, goods, and services and entities amid Member States that have interrelated economies, aligned with manifold currencies, and inconstant, weak forex rates. The construction of the EMU was an optimum alternative in curing such detrimental European problem (Liebscher). The errands of the EMU are in delved into three significant activities: to implement an efficient monetary policy aligned with price stability; to harmonize the economic policies in the Member States and; (3) to ensure the fluent operation of the sole market . The monetary policy’s focal objective is price stability. If a nation wants to achieve a free-market economy, price stability should be its priority. The Eurosystem’s prior goal is to sustain price stability because the latter reflects a pre-state of a maintainable economic progress and proliferating employment rate (Liebscher 378). The EMU would assist its Member States about public finances, which are aligned with the meeting of fiscal debt and deficit requirement (379). Lastly, institutional stability is also the target of the EMU wherein Member States are required to undergo institutional reforms (382). 3.0 Economic State of Italy 3.1 Fiscal and Monetary Policies Fiscal policy is the alterations in federal taxes and government expenditure in order to attain macroeconomic goals. Monetary policy, on the other hand, is the action executed by the European Central Bank and the national bank to manage the accessibility of cash and interest rates in achieving goals. Fiscal policy is essential to restrain the prejudice done by the state in terms of deficiency. This policy serves as a barrier for the government overspending, deficiency issues, and restrictions in implementing discretionary rules. When intense pressure attacks the economy, wherein monetary policy’s efficiency dissolves, fiscal policy can be a remedy to resolve the pecuniary issues (Liebscher 3 79). In terms of fiscal policies, there has to be 0.5 percent of yearly development of the gross domestic product of the country as stipulated by the reformed Pact (Marino, Momigliano, and Rizza 445). In 1997, Italy had accumulated a 1.4 percent of GDP, which was the end of the consolidation proceedings of the 1990s. When Italy was reformed, especially on the accounts of stability and economic growth, the grounds for the formulation of the policies were stipulated from the event. In fact, the Bank of Italy