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
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POLICY MISSIONS
Европейская денежная система
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2. POLICY MISSIONS
Policy missions have not been altered by the start of the euro. They correspond to aspects of the public interest that were not redefined, and did not need a redefinition, because of the euro.
In the field of central banking the public interest is to provide economic activity with a medium of exchange that preserves its value over time. In the broader field of economic policy - of which monetary policy is part - the public interest is, to use words from the Maastricht Treaty that can be similarly found in most national constitutions and legislation, "to promote economic and social progress which is balanced and sustainable" (Article B). In the field of European integration, the mission is that of "creating an ever closer union among the people of Europe, in which decisions are taken as closely as possible to the citizen" (Article A). Finally, in the field of international relations the public interest is to "maintain international peace and security" (UN Charter Article 1.1) as well as to "contribute to the promotion and maintenance of high level of employment and real income" (Articles of Agreement of the IMF, Article 1.ii).
The formulation of these policy missions has taken shape over the course of this century, or even earlier, on the basis of experience, scholarly investigation, political debate and action. There would be no consensus about the primary mission of the central bank if countries had not experienced first hyperinflation and then successful monetary management by a stability-oriented and independent central bank. Social progress and economic growth would not be on the agenda of governments without the labour movement and the Great Depression. We would not have the EU Treaties and the Charter of the UN without the tragedy of two World Wars.
Economists have explored the scope for economic policy action, and the limits thereof, in the monetary, fiscal and regulatory fields. Without thirty years of academic debate about the role of monetary policy, the EMU Treaty and the Statute of the ESCB/ECB would not have been written the way they were. The subordination of economic policies to the principle of "an open market economy with free competition" would not have been explicitly inserted in the Maastricht Treaty (Article 3A) had those principles not gained recognition in the community of scholars.
Central bankers (most notably in the Delors Committee) have prepared the blueprint for the single currency. International and constitutional lawyers have elaborated the legal concepts and studied the procedures to carry out the policy missions. They have built that legal monument that is the Rome/Maastricht Treaty. Citizens and politicians have discussed, promoted and implemented the whole process.
Different policies carry different degrees of compulsion and effectiveness. In general, instruments are more strongly framed when they are entrusted to institutions whose area of jurisdiction coincides with that of the nation state. Strongly framed instruments, however, do not necessarily produce strong results. Tough regulation against air pollution adopted only by a small country is less effective, for that same country, than softer regulation adopted by a larger group of countries. The economic literature about externalities, or that about optimal currency areas, are seminal examples of the contribution economic research can make in this respect.
In the following I shall focus on the mission of the central banker, because this is the function assigned to me. I am convinced, however, that the missions I mentioned are fundamentally complementary. Different assignments are part of an orderly division of labour. In a democratic and market-oriented environment not only citizens, but also officials, can consider the aims of the various policy bodies and charters - national and international - to which they refer as forming a consistent configuration. I regard this as a special privilege of the time and space in which I have lived so far.
3. NEW CHALLENGES
In the last thirty years central bankers have fought for two objectives: the recognition of the primacy of price stability for monetary policy, and the independence of the central bank. This has been the period in which the combination of political democracy and fiduciary currency made the governance of money particularly difficult in many countries.
The intellectual recognition, then the political acceptance and finally the actual implementation of a monetary constitution based on price stability and central bank independence have required a long process. The academic profession has contributed to it in a powerful way, from Irving Fisher to Don Patinkin to Robert Lucas. Even those who have denied the need of having a central bank, like Milton Friedman and Friedrich A. von Hayek, have in the end contributed to clarify its role and function. No less persuasive have been the arguments of experience. In a positive sense, the economic success of the country - Germany - where the two elements had been introduced at an early stage. In a negative sense, the social evil of high and prolonged inflation suffered by many other countries, including my own.
In legal and institutional terms, the result of this long fight has been engraved in the Treaty of Maastricht. The Treaty represents the strongest monetary constitution ever written, not only because of its substance, but also because the procedure to amend it is more difficult than that required for the charter of any existing central bank. Largely induced by Maastricht and EMU is also the independent status of national central banks in the European Union. We should indeed not forget that, until recently, key decisions in the field of monetary policy were still in the hands of the Treasury in such countries as the United Kingdom, France, Italy and Spain. The Maastricht process has been the catalyst for monetary reforms central bankers had advocated for years.
Partly, but not exclusively, because of this process, the conditions under which the single currency has come to life differ from those prevailing in the past years.
Prices have for some time now shown the highest degree of stability seen for more than thirty years. Most countries have made significant progress towards fiscal consolidation. The consensus on sound principles of budgetary and monetary management is broader and stronger, among both politicians and ordinary people, than in any other period the present generation can remember. Few dispute in an open way the now widely used expression "culture of stability".
However, when in 1981 it was decided to save the last specimen of the smallpox virus in a laboratory for the sake of documentation, health had not ceased to be in danger. Similarly, none of these achievements can be considered as permanent and central bankers should primarily strive to preserve them. To this end, detecting new challenges at an early stage is essential. The question is: where do the problems come from? What are the circumstances under which the "old mission" will have to be accomplished in the coming years? What threatens our health besides smallpox?
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