WORKING PAPER 06-4

The External Policy of the Euro Area: Organizing for Foreign Exchange Intervention

by C. Randall Henning, Peterson Institute for International Economics

June 2006

The European Central Bank (ECB) enjoys substantial latitude over euro area exchange rate policymaking and intervention, greater than that held by central banks in the United Kingdom, Japan, and even the United States. Henning analyzes the division of labor among the ECB, the euro area finance ministers, and other European actors on intervention operations. He concludes that these institutional prerogatives are subject to renegotiation over time and that divergent economic performance within the euro area could threaten the ability of the monetary union to act coherently.

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