ABSTRACT
The current neo-liberal model of EMU has had a substantial impact upon monetary policy and financial regulation within the Eurozone. The neo-liberal theoretical approach, detailed in Chapter 1, forms the basis for the formation and policy objectives set for the European Central Bank. In accepting the existence of a supply-determined (natural) rate of unemployment, where economic actors have rational expectations and central bank independence is intended to create low-inflation policy credibility and thereby evade the time inconsistency problem, it is the conjecture of this book that monetary policy in the Eurozone is fundamentally flawed. By contrast, this chapter outlines the Keynesian (ICU) alternative to a monetary policy framework, where the focus would shift from price stability to broader objectives of creating the conditions which would best facilitate the sustainable achievement of full employment and economic growth in participating economies. Released from the constraints imposed by the adoption of a single currency and a monetary policy approach dominated by flawed theoretical assumptions of a self-managing economy always and rapidly returning to full-employment equilibrium, the ICU approach would provide a supportive infrastructure that would encourage systematic rebalancing of the Eurozone economies without pushing deficit nations into a spiral of austerity, slow growth and unemployment. The reformed Keynesian ECB would retain its leadership role within the alternative form of EMU, but its new focus would be on the stability of the system as a whole and acting to prevent the growth of financial instability.
