 Germany, 1923. One-off of bread cost 200 billion Reichmarks. That might be a bit of a problem. This problem is caused by the lack of price stability. If banks choose to increase the amount of money in the economy, it would give the consumers more money. But if the consumers are still chasing the same amount of goods, yet with more money, then the price of those goods would increase, while the value of money decreases. This is inflation. In contrast, deflation is the opposite. The decrease in the general price of goods and services. And price stability implies maintaining inflation at a manageable rate of 2%. But how does this affect us? If there is no price stability and fluctuations become extreme, confidence in the economy falls and so does investment. Lending and borrowing is disrupted if the rate of depreciation of money is higher than the interest rate. This way, both banks and savers lose. So spending decreases. And since one person's spending is another person's income, incomes and the economy fall, all of which look bleak for the future. The body that is in charge of controlling price stability and monetary policy in the EU is the European Central Bank. So how does the ECB do this? It uses monetary policy. There are two main components of monetary policy that the ECB utilizes, interest rates and the money supply. Interest rates are the cost of borrowing or the reward of saving. This means if the rate of interest increases, the reward of saving money is greater. So people are going to save more and spend less. Less money is available for buying the same amount of goods, so the price level decreases. The second part of monetary policy is the supply of money. This is the amount of money both in cash and credit circulating in the economy. The greater the amount of money, the greater the inflation. The ECB and other partners have the ability to supply coins and bills to the economy, which means they are in charge of the currency circulation. They also regulate the money market. This ensures that banks don't lend out too much, increasing the supply of money, and so inflation. It also secures they don't lend out too little, risking deflation. A more recent method that the ECB has implemented is quantitative easing, which is when central banks buy government bonds or other assets from financial institutions, such as commercial banks, in order to stimulate spending. Buying bonds is similar to lending money to an institution. This leaves them with lots of cash to spend and invest, and thus increases inflation without the need of changing interest rates. Essentially what the ECB does is monitor the price level, and then implement the policies necessary to reach the desired level. All of this is done in order with a treaty of the functioning of the European Union, specifically Article 127, which says the ECB should work with the principles of open market and free competition. It is now easy to see that price stability is an incredibly complex issue. It is influenced by many factors, and in turn affects the whole market. Therefore, the ECB has an undeniably important role, with far-reaching consequences on both the European and the world economy.