Bond markets
Banking
POLICY MISSIONS
MAKING THE EUROSYSTEM A CENTRAL BANK
DEALING WITH EUROPEAN UNEMPLOYMENT
MANAGING FINANCIAL TRANSFORMATIONS
COPING WITH A LACK OF POLITICAL UNION
CONCLUSION
The importance of the monetary strategy for a successful start of European monetary policy
The new monetary policy instruments and procedures for the euro area
Minimum reserve system
Introduction
Monetary policy strategy of the ESCB
Pushing the boundaries of the process of European integration
Pushing the boundaries of stability-oriented economic policies
Pushing the boundaries in the development of financial markets
The Eurosystem and the equity markets
Introduction
The monetary policy strategy
Accountability and transparency
Навигация
Pushing the boundaries of stability-oriented economic policies
Европейская денежная система
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2. Pushing the boundaries of stability-oriented economic policies
Economic and Monetary Union in Europe also provides an opportunity to push the boundaries in areas of economic policy. The convergence process prior to the establishment of Economic and Monetary Union was helpful in order to achieve a broad consensus among policy makers on the virtues of stability-oriented policies, i.e. policies directed towards price stability, fiscal discipline and structural reform geared at promoting growth and employment. The convergence process also helped policy makers to focus their efforts on the formulation of stability-oriented economic policies in the participating countries and it also facilitated the acceptance of these policies among the general public.
In the new environment of Economic and Monetary Union, monetary policy can no longer be applied as a means of accommodating economic developments in an individual Member State. Such nation-specific developments would have to be countered by fiscal and structural policies, while the best way in which the single monetary policy can contribute to improved conditions for growth and employment is by ensuring price stability in the euro area as a whole. In this respect, the formulation of the Maastricht Treaty is instrumental, since it guarantees the Eurosystem's firm commitment to price stability; it clearly specifies that price stability is the primary objective of the single monetary policy.
The Eurosystem has put a lot of effort into establishing a monetary policy framework that will ensure that it can fulfil its primary objective of price stability as efficiently as possible. There are several aspects to this framework.
First, the Eurosystem has adopted a quantitative definition of the primary objective - the Governing Council of the ECB has defined price stability as a year-on-year increase of the Harmonised Index of Consumer Prices (HICP) for the euro area of below 2%. This is a medium-term objective. In the short run, many factors beyond the scope of monetary policy also affect price movements.
Second, the Eurosystem has made public the strategy to be used for the implementation of the single monetary policy. This strategy is based on two key elements, whereby money has been assigned a prominent role, as signalled by the announcement of a reference rate of 4Ѕ% for the 12-month growth of the euro area monetary aggregate M3. The other element consists of a broadly based assessment of the outlook for price developments and the risks to price stability in the euro area on the basis of a wide range of economic and financial indicators.
Third, the Eurosystem puts significant emphasis on the need to carefully explain its policy actions in terms of its monetary policy strategy. Therefore, the Eurosystem has established various channels for the communication with market participants and the general public. The most important communication channels are the ECB's Monthly Bulletin, its press releases and the press conferences following the meetings of the Governing Council, the President's appearances in the European Parliament and the speeches given by the members of the Governing Council.
Fourth, the Eurosystem's monetary policy is implemented in a marketed-oriented manner. The Eurosystem's key policy instrument is its weekly tender for two-week repo operations, the so-called main refinancing operations. The features of the monetary policy operations are decided by the decision-making bodies of the ECB, but the operations are conducted in a decentralised manner by the NCBs.
The experience gained from the first five months of operations has shown that the Eurosystem's procedures for decision-making and operational implementation works very well. There are therefore no operational reasons to call into question the ability of the Eurosystem to fulfil its mandate to ensure price stability in the euro area. However, stable macroeconomic policies cannot be achieved by monetary policy alone. It is also necessary for governments to pursue fiscal and structural policies consistent with such macroeconomic stability.
In order to ensure fiscal discipline in the participating countries, the EU Council agreed in June 1997 to establish the so-called Stability and Growth Pact. This Pact sets an upper limit of 3% of GDP for the fiscal deficits of the countries participating in the euro area. Furthermore, the Pact specifies as an objective that Member States are to bring government budgets close to balance or even into surplus in the medium term. Only if this objective is met will sufficient room for manoeuvre be created to enable fiscal policy to react to cyclical developments without risking a loss of credibility.
As regards structural policies, the policy framework is, so far, less well developed. This is worrying given that the need for structural reform is urgent in many areas in order to be able to effectively promote greater growth potential and higher employment. I appreciate that these problems are generally acknowledged, and some action has been taken in recent years. For example, it is encouraging that the European Employment Pact adopted at the EU Summit in Cologne last weekend explicitly recognises the need to pursue comprehensive structural labour market reform.
Nevertheless, experience from several countries shows that it usually takes a long time for the full effects of structural reforms to be seen. Therefore, it is worrisome that structural reforms, in particular as regards labour markets as well as those to limit expenditure on social security and pension systems, are long overdue in several Member States.
Clearly, the establishment of Economic and Monetary Union does not mean that the efforts undertaken during the convergence process can be relaxed. On the contrary, the need for policy co-ordination among the participating countries is now even more pressing. We have already seen examples of negative market reactions to any perceived slippage in fiscal discipline or postponement of structural reform. Personally, I think that these swift market reactions, although sometimes exaggerated, may be helpful in promoting a continued stability-oriented policy thinking in Europe. Any move towards less responsible policies would come up against intense peer pressure from other countries.
In this context, I would once more like to underline how important it is that a consensus has emerged among European policy-makers on the virtues of price stability, fiscal discipline and market-oriented structural reform. In this way, we have already pushed the boundary significantly towards a macroeconomic environment conducive to growth and employment, although much still needs to be done in the years to come.
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