European Central Bank Monetary Policy

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Committee (MPTC), Monetary Policy Implementation Committee (MPIC) and the Monetary Policy Tech Committee (MPTC). The MPC the highest policy making committee of the Bank with the following mandates:

• Review economic and financial conditions in the economy

• Determine appropriate stance of policy in the short to medium term

• Review regularly, the CBN monetary policy framework and adopt changes when necessary.

• Communicate monetary/financial policy decisions effectively to the public and ensure the credibility of the model of transmission mechanism of monetary policy (Central Bank of Nigeria, 2015).

Below is a graph displaying Nigeria’s interest at a record high of 13 percent in November of 2014 reported by the CBN. The Naira decreased by 7 percent as the oil prices themselves are declining. In order to allow some flexibility in the exchange rate to stem speculative activities and depletion of reserves and to further tighten the monetary policy stance to anchor inflation expectations the committee decided to (Trading Economics, 2015):

Socio-cultural Environment in Germany

Germany has been a supporter in the Nigerian power industry and their micro to medium sized enterprises. Just recently Nigeria received a $200 million dollar line of credit to develop their small-scale renewable energy sector. Along with that credit line comes €5 million for another facility that would aid in the technical assistance to Nigeria’s power sector. Germany has realized that not only will this be a boost in the economy but also an improvement in microfinance and research. These financial backings will create several opportunities for research, enabling environment reforms, and supporting Nigerian exports in sub-regions (Nnabugwu, 2014). The removal of the physical barriers will support border management and decrease administrative issues within the domestic and intra-regional trade (Okafor, 2014).

Socio-cultural Environment in Nigeria

Nigeria partners with Germany in many facets such as education, energy, culture, poverty reduction and human rights. Nigeria’s Goethe-Institute located in Lagos promotes knowledge of the German language both abroad and international. They offer teachers of the German language to attend their schools and learn the foreign language and teach in the Nigerian Universities and schools. The impact that these countries will have on one another will be endless since energy, education, and economic support is constant. Germany has not only supported Nigeria financially but also supports the well-being of their people by creating programs for them in their German universities catered to minority woman. Nigeria has given its people a new perspective that their country will improve in areas that are lacking. (Goethe-Institute Nigeria, 2015)

Monetary Policy in Germany

Prior to the creation of the common currency union in Europe, the background to Germany’s macroeconomic policies remained challenging. While the monetary authorities in Germany had adopted a rather steady stance in the face of significant financial market volatility, fiscal policy had been complicated by weak economic growth and higher unemployment. According to the Organization for Economic Cooperation and Development (OECD), the country’s monetary and financial conditions had become more expansionary in the years leading up to the Euro, the exchange rate was weakening against the dollar and long-term rates were falling in response to low inflation. The Bundesbank (Germany’s Central Bank) had allowed relatively rapid money growth, and made a further cut in policy-controlled interest rates in August 1996 in pursuit of its "stability-oriented" strategy. In the run-up to European Monetary Union, the framework for implementing such a strategy was becoming more complex (OECD Economic Surveys, 1997).

Since the launch of the euro on January 1st 1999, the European Central Bank (ECB), based in Frankfurt, sets monetary policy for Germany as it does for all member countries of the European economic and monetary union (EMU). The primary objective of the ECB’s monetary policy is to maintain price stability, viewing it as the best contribution monetary policy can make to economic growth and job creation. Monetary policy operates by steering short-term interest rates, thereby influencing economic developments, in order to maintain price stability for the euro area over the medium term. The ECB has adopted a specific strategy to ensure the successful conduct of monetary policy. The ECB has defined price stability as a year-on-year increase in the Harmonized Index of Consumer Prices (HICP) for the euro area of below 2 percent.

In the pursuit of price stability, the ECB aims at maintaining inflation rates below, but close to, 2 percent over the medium term. The strategy also includes an analytical framework for the assessment of all relevant information and analysis needed to take monetary policy decisions. This framework is based on two pillars: economic analysis and monetary analysis. Monetary policy decisions are taken by the ECB’s Governing Council. The Council meets every month to analyze and assess economic and monetary developments and the risks to price stability and to decide on the appropriate level of the key interest rates, based on the ECB’s strategy. To implement its monetary policy decisions, the Governing Council of the ECB has adopted a set of monetary policy instruments and procedures as laid down in the General documentation on Euro system monetary policy instruments and procedures (European Central Bank, 2015).

The ECB uses economic analyses to identify risks to price stability, especially shocks hitting the euro-area economy and projections of key macroeconomic variables. This analysis is complemented by an assessment of medium- to long-term trends in inflation, considering developments in a wide range of monetary indicators, including money supply (M3), its components and counterparts, notably credit, and excess liquidity. Euro-zone inflation, as measured by the HICP, slowed dramatically as the credit crisis developed, easing from a peak of 4.0 percent in mid-2008 to turn negative in mid-2009. By December 2011 the HICP number had edged back up to 2.7 percent, already over the ECB’s target.

Germany’s inflation followed a similar pattern, with the HICP measure at 2.3 percent in December 2011. The ECB’s reference rate for growth of M3 which consists of broad money plus marketable instruments has been 4.5 percent since December 1st, 1998, even though M3