A recent agreement by the major European countries suggests that the European Union might create a Federal Reserve-style structure. N.C. State University economist Mike Walden takes a look at what happened and why it’s important.
“Well, recently there was a major breakthrough in Europe by the members of the Euro zone to allow the European Central Bank to directly purchase the debt of individual countries. Now this is a big change. Also, the Euro countries recommended that a system of deposit insurance be set up similar to what we have in this country and for that European Central Bank to take over duties as a central bank regulator.
“Now these are all functions that are very similar to our Federal Reserve. Now in terms of deposit insurance, that’s run by FDIC. So, it looks as if Europe wants to move in terms of its monetary and financial system closer to a system that we have here in the U.S. Some argue that’s good.
“Now obviously there are some dissenters. But there (are) still question marks. One question mark is on implementation. We’ve seen a lot of these European agreements over the last couple of years be signed and then not necessarily implemented. So, we have to watch that.
“And then secondly — and this is the big, big problem — what kind of fiscal controls, what kind of limits on individual countries’ spending and acquisition of debt might go along with this enhanced European Central Bank?
“These are questions that’ll have to be answered. But, again, the reason this is important to us is because what happens in Europe does have an impact on our economy.”