usually, by the central banks setting interest rates on the money they lend to
ordinary banks or, in their role as agents for the central government, buying or
selling government bonds to increase or reduce the amount of money in
circulation. (Government bonds are a mechanism for governments to satisfy
their frequent need to borrow large amounts of money.)Monetaristssub-
scribe to the theory that controlling the money supply through raising interest
rates, and thus restricting credit, is virtually the sole determining factor over
inflation rates. Central banks must also loosen control over credit if lack of
demand threatens too severe a recession. To achieve currency stability they
need to set interest rates such that external investment in their own currency
adjusts its value against other currencies to the level they deem suitable.
Because there is considerable common interest among the developed
economies in having generally stable and predictable currency exchange rates,
central banks tend to co-operate to fix such rates. The European Monetary
Union has done this even more efficiently since the introduction of the Euro
and the ECB. So if, for example, the value of the US dollar falls too low, the
central banks of the major countries will all sell their own currencies and buy
dollars to increase its price. In many ways the activities of central banks are an
attempt to compensate for the lack of an automatic regulating effect formerly
supplied by adherence to the gold standard, when currencies were tied to the
sheer market value of the gold that banks had to hold to support their issue of
notes and coins. Central banks are inevitably undemocratic, as they will not,
unless forced, take note of a government’s intentions and desires if these clash
with the primary aim of stabilizing the internal and external value of their
currency. It is partly for this reason, notwithstanding the new independence of
the Bank of England, that British governments have been very dubious about
the merits of participating in European Monetary Union and introducing the
euro.
Central Europe
Central Europe, sometimes called East-Central Europe, is more of a concept
than a geographical term. Consensually, whatever it is called, it includes
primarily the ‘big three’ former communist European countries—Poland,
Hungary and what was Czechoslovakia, and is now the Czech Republic and
Slovakia. Indeed, ‘Central Europe’ was more recently known as Eastern
Europe when that connoted the European part of theSoviet bloc. Concep-
tually the idea that these and some other smaller nations had something in
common other than geographical proximity comes from an earlier designation,
now somewhat politically incorrect. Central Europe belongs to the old
‘Middle Europe’, or the ‘Mitteleuropa’ of late 19th- and early 20th-century
Central Europe