Abstract
The European Economic and Monetary Union (EMU) is not yet a reality but the process of economic and monetary integration has already had an impact on the global financial markets and the international monetary system. Hence, it is important to understand the nature of the EMU and of the institutions that will coordinate and administer its activities. Yet, while most member nations support the idea of a single currency and of common monetary policies, there are serious problems with the technical aspects of the transition process, the convergence criteria, and the design of the EMU institutions as well as the EMU’s membership.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Preview
Unable to display preview. Download preview PDF.
Notes
The ESCB will be made up of the member nations’ central banks and the ECB.
European Monetary Institute (EMI) 1994 Annual Report, Frankfurt am Main, April 1995, p.66.
It should be noted that the Protocol on the Statute of the EMI is part of the Maastricht Treaty.
Article 109.f.6 of the Maastricht Treaty, 1992.
Article 109.18-9 of the Maastricht Treaty, 1992.
Owing to the complex nature of this task, this date will probably be delayed.
EMI 1994 Annual Report, p.63.
Article 12, ESCB and ECB Protocol, Maastricht Treaty, 1992.
Denmark, Germany, Spain and France have been using M3 and Italy has been using M2 as monetary targets.
Friedman, Benjamin M. “Intermediate Targets Versus Information Variables as Operating Guides for Monetary Policy,” in Wijnholds, J Onno de Beaufort, Sylvester C. W. Eijffinger and Lex H. Hoogduin, eds., A Framework for Monetary Stability, in Financial and Monetary Policy Studies, London: Kluwer Academic Publishers, 1994.
Friedman, Benjamin M. “Intermediate Targets Versus Information Variables as Operating Guides for Monetary Policy,” unpublished paper presented at an International Conference of De Nederlandsche Bank and Tilburg University on “A Framework for Monetary Stability,” Amsterdam, October 1993.
EMI 1994 Annual Report, p. 128.
“Progress Towards Convergence,” European Monetary Institute (EMI), Frankfurt am Main, November 1995, p.70.
EMI 1994 Annual Report, p.74.
EMI 1994 Annual Report, pp.74–75.
The assessment of the Impact of different monetary policy instruments on targeted variables requires a working gross settlement system, which the ECB will apply.
“Progress Towards Convergence,” EMI, 1995, p.72. Also see Tables 5.1 and 5.3.
See “Progress Towards Convergence,” EMI, 1995, for a detailed explanation.
“Progress Towards Convergence,” EMI, 1995.
EMI 1994 Annual Report, p.80.
Under Article 109.f.3 of the Maastricht Treaty, 1992.
EMI 1994 Annual Report, pp.75–76.
EU member nations that have opted out of the EMU.
“Progress Towards Convergence,” EMI, 1995.
EMI 1994 Annual Report, pp.77–79.
EMI 1994 Annual Report, pp.87–94.
“Report on the Payment Systems in EC Member States,” Committee of Central Bank Governors, 1992.
EMI 1994 Annual Report, p.90.
EMI 1994 Annual Report, pp.81–84.
In the course of 1993 and 1994, the use of Ecu in private transactions was influenced mainly by the political and economic environment of the EU. Tensions in the ERM in the first half of 1993 created uncertainty with respect to the interest and exchange rates of the currencies included in the Ecu basket. The widening of the ERM bands to +/−15 percent in August 1993 increased the markets’ awareness of these risks. Eventually, the monetary authorities managed to keep most of the currencies within their former band limits which reassured the financial markets.
Article 4, EMI Protocol, Maastricht Treaty, 1992.
Adopted from the EMI’s 1994, Annual Report, pp. 107–10.
For a detailed discussion of the subject, see Alesina, Alberto, and Lawrence H. Summers. “Central Bank Independence and Macroeconomic Performance: Some Comparative Evidence,” Journal of Money, Credit and Banking. May 1993, pp. 151–162; and Cottarelli, Carlo. “Limiting Central Bank Credit to the Government: Theory and Practice,” IMF Occasional Paper, NO: 110, Washington, DC: IMF, 1993.
Article 104, Maastricht Treaty, 1992.
In the case of Italy, in its 1994 Annual Report the EMI combines the national Foreign Exchange Office (Ufficio Italiano di Cambi) with the Banca d’Italia.
The financing by central banks of obligations of the public sector to the IMF or of obligations resulting from the implementation of the medium-term financial assistance facility of the EU, is also unconditionally exempted.
“Normal” fluctuation margins originally pertained to the +/− 2.25 percent currency bands of the ERM. It should be noted that in the aftermath of the ERM crisis and the subsequent widening of the currency bands to +/−15 percent, what was “normal” was debatable (among EU member nations) for a long time. However, to date, the EU’s official position is that the +/− 15 percent currency band is “normal.”
According to the EU Commission’s May 1995 “Green Paper” and the subsequent November 15 EMI “Progress Towards Convergence” report, Stage III is divided into three parts, Phase A, B and C. During the earlier phases, in addition to the Euro being introduced on a non-cash basis and the irrevocable locking of EMU participants exchange rates, the EU still maintains the 12 currencies; during the latter phase the Euro is introduced on a cash basis and eventually evolves into the sole legal tender of EMU participants.
However, the ECB General Council has no voting authority. It is the Governing Council, comprised of the ECB President and the EMU-participating central bank governors, that is the voting power in the ECB.
This compromise was formalized at the December 1992 Edinburgh IGC Summit. The agreement also increased the ratio of the EU budget to the common GDP by 12 percent beginning in 1995.
Austria, Finland and Sweden are net contributors to the common budget, as they have above-EU-average per capita incomes, high levels of agricultural protection and no serious regional problems.
Article 15.2, EMI Protocol, Maastricht Treaty, 1992.
Article 109.f.4., Maastricht Treaty, 1992.
As a result, the EMI is bound to operate in a consultative manner and will have to function prudently to be effedive in convincing the national and common authorities of the validity of its adions. Article 109.f.5, Maastricht Treaty, 1992.
France, Belgium, Italy and Spain want the EMI to help manage their currency reserves and develop a common money supply aggregate that would replace national monetary measures. Article 6.4, EMI Protocol, Maastricht Treaty, 1992
Speech by the Governor of the Bank of England Eddie George on the occasion of the CBI West Midlands Region 1994 Manufacturing Dinner at the International Convention Center in Birmingham, October 27, 1994; in BIS Review No. 204, November 1994.
Article 11.2, ESCB Statute, Maastricht Treaty, 1992.
Article 109.a, Maastricht Treaty and Article 10, ESCB Statute, Maastricht Treaty, 1992.
Countries with derogations are defined as either not having met the EMU convergence criteria or having opted out of the EMU.
Article 45 and 47, ESCB Statute, Maastricht Treaty, 1992.
Article 43.2, ESCB Statute, Maastricht Treaty, 1992.
This is not mentioned explicitly, but it is derived from the provisions of Articles 2 and 3 of the Maastricht Treaty combined with Article 2 of the Statute.
However, this could reduce the confidence of the financial markets and of the EU citizens in the decision-making process.
Roland Vaubel, 1994.
Peter Bofinger, 1992.
Article 12.1, ESCB Statute, Maastricht Treaty, 1992.
The U.S. Federal Reserve System delegates power (monetary policy decisions) to its 12-member Federal Open Market Committee (FOMC).
Article 2, ESCB Statue, Maastricht Treaty, 1992.
Article 2, Maastricht Treaty, 1992.
Humphrey-Hawkins Act of 1978.
See Annex V.8 (Table 5.5) for a summary of the institutional features of the various EU central banks.
Article 105.5, Maastricht Treaty, 1992.
EMI 1994 Annual Report.
EMI 1994 Annual Report.
EMI 1994 Annual Report.
Deane, Marjorie and Robert Pringle. The Central Banks. New York: Penguin Books, 1994; and EMI, Annual Report, 1994.
EMI 1994 Annual Report.
“The ESCB should then carry out its monetary policy by focusing on the level of interest rate,” Ciampi, Carlo Azeglio. “An Operational Framework for an Integrated Monetary Policy in Europe” in Report on Economic and Monetary Union in the European Community (Delors Committee for the Study of Economic and Monetary Union), Luxembourg: Office for Official Publications of EEC, 1989.
Deane, Majorie and Robert Pringle, The Central Banks, 1994.
Fry, Maxwell J. “Choosing a Money for Europe,” Journal of Common Market Studies. September 1991, pp.481–504.
Alesina, Alberto, and Vittorio Grilli. “The European Central Bank: Reshaping Monetary Politics in Europe,” National Bureau of Economic Research, Working Paper No. 3860, 1991.
For a detailed discussion of central bank independence and macroeconomic performance see Alesina, Alberto and Lawerence H. Summers, 1990; and Pollard, Patricia S. “Central Bank Independence and Economic Performance,” Federal Reserve Bank of St. Louis Economic Review, July/August, 1993.
Alesina and Grilli, “The European Central Bank: Reshaping Monetary Politics in Europe,” 1992, p.69.
Alesina and Grilli, “The European Central Bank: Reshaping Monetary Politics in Europe,” 1992, p.69.
Alesina and Grilli, “The European Central Bank: Reshaping Monetary Politics in Europe,” 1992, p.69.
Alesina and Grilli, “The European Central Bank: Reshaping Monetary Politics in Europe,” 1992, p.69.
Debelle, Guy and Stanley Fischer. “How Independent Should a Central Bank Be?” in “Goals, Guidelines and Constraints Facing Monetary Policymakers; Proceedings of a Conference held in June 1994,” Jeffrey C. Fuhrer, ed., Federal Reserve Bank of Boston, 1994.
Grilli, Vittorio, Donato Masciandro and Guido E. Tabellini. “Political and Monetary Institutions and Public Financial Policies in Industrial Countries,” Economic Policy. October 13, 1991, pp.342–92.
Debelle, Guy and Stanley Fischer, “How Independent Should a Central Bank Be?,” 1994.
Article 107, Maastricht Treaty, 1992.
The Bundesbankgesetz of 1957 provides that “without prejudice to the performance of its functions, the Deutsche Bundesbank shall be required to support the general economic policies of the Federal Government. In exercising the powers conferred on it by this Act it shall be independent of instructions from the Federal Government.”
See Annex V.8 (Table 5.5) for detailed information on the Deutsche Bundesbank’s structure.
The current Central Bank Council can have up to 17 members.
That is, their ability to meet the Maastricht Treaty convergence criteria (Article 109j, Maastricht Treaty, 1992) and the central bank independence requirement (Articles 107 and 108, and Article 14-ESCB-ECB Protocol, Maastricht Treaty, 1992).
Article 107, Maastricht Treaty and Article 14, ESCB and ECB Protocol, Maastricht Treaty, 1992.
Articles 12.1 and 14.3, ESCB and ECB Protocol, Maastricht Treaty, 1992.
As mentioned before, member nations with derogations are those that have either failed to meet the convergence criteria or have opted out of the EMU. The U.K. and Denmark have obtained special protocols that exempt them, among others, from Article 14 of the ESCB/ECB Protocol mandating central bank independence.
The banking and financial sector summaries in this section are adapted from the Waiden Country Reports (January 1995 updates); and “Progress Towards Convergence,” EMI, 1995.
“1995 Guide to Developments in the World’s Equity and Bond Markets,” Euromonev. 1995, pp.4–5.
“Progress Towards Convergence,” EMI, 1995, p.102.
“Belgium Urges New Debate on EMU Sanctions,” Financial Times. August 9, 1996, p.1.
Euromonev “1995 Guide,” pp.41–43.
Euromonev “1995 Guide,” pp.41–43.
EMI 1994 Annual Report, p. 106.
Acts 93–980 of August 4, 1993 and 93–1444 of December 31, 1993.
EMI 1994 Annual Report, p. 101.
Euromonev “1995 Guide,” pp.8–9.
“A Special Sponsored Section: Commercial Banks,” Institutional Investor. August 1995, p. 14.
Euromonev “1995 Guide,” pp. 16–19.
“Greece: Financing Foreign Operations,” Economist intelligence Unit. December 1995, p.28.
Euromonev Handbook, September 1994, p.30.
“Progress Towards Convergence,” EMI, 1995, p.96.
Waiden Country Reports, Italy, 1995.
Euromonev “1995 Guide,” pp.25–26.
“Progress Towards Convergence,” EMI, 1995, p.96.
EMI 1994 Annual Report, p.106.
Euromonev “1995 Guide,” p.35–38.
“Progress Towards Convergence,” EMI, 1995, p.96.
Euromonev “1995 Guide,” pp.35–38.
“Portugal: Financing Foreign Operations,” Economist Intelligence Unit. May 1995, p.25.
“Spain: Financing Foreign Operations,” Economist Intelligence Unit. July 1995, p.29.
Euromonev “1995 Guide,” pp.41–43.
“Number One and Bringing Billions Home for Britain,” Evening Standard. March 13, 1995, p.40.
“United Kingdom: Financing Foreign Operations,” Economist Intelligence Unit. August 1995, p.34.
Euromonev “1995 Guide,” pp.62–64.
Adopted from the EMI 1994 Annual Report, pp.36–37.
Adopted from “Progress Towards Convergence,” EMI, Frankfurt am Main, November 1995, p.8.
Article 1, Protocol on the Convergence Criteria Referred (to in Article 109.j), Maastricht Treaty, 1992.
Source: “Progress Towards Convergence,” EMI, Frankfurt am Main, November 1995, p.19.
Adopted from “Progress Towards Convergence, EMI, Frankfurt am Main, November 1995, p.27.
Adopted from “Progress Towards Convergence,” EMI, Frankfurt am Main, November 1995, p.40.
Adopted from “Progress Towards Convergence,” EMI, Frankfurt am Main, November 1995, p.33.
Adopted from “Progress Towards Convergence,” EMI, Frankfurt am Main, November 1995, p.40.
Adopted from “Progress Towards Convergence,” EMI, Frankfurt am Main, November 1995, pp.43–44.
Author information
Authors and Affiliations
Rights and permissions
Copyright information
© 1997 Springer Science+Business Media New York
About this chapter
Cite this chapter
Rehman, S.S. (1997). The European Central Bank. In: The Path to European Economic and Monetary Union. Springer, Dordrecht. https://doi.org/10.1007/978-94-011-5358-4_5
Download citation
DOI: https://doi.org/10.1007/978-94-011-5358-4_5
Publisher Name: Springer, Dordrecht
Print ISBN: 978-94-010-6252-7
Online ISBN: 978-94-011-5358-4
eBook Packages: Springer Book Archive