The fourth challenge consists in coping with the lack of a political
union. The relationship between monetary and political union and whether
the latter should be a precondition for the former has been a central issue
in the European debate well before the establishment of the Delors
Committee in 1988. While I do think that there is a lack of political union
and that this lack constitutes a serious challenge for the Eurosystem, I
also think that the expression "lack of political union" is often used in
an unclear way that blurs the issue. Let me thus first consider two
meanings of this expression with which I do not concur.
First, I do not concur with the idea that there is no political union
in Europe today. It is not because the content and the competence of the
European Union are mainly economic, that its nature and historical role are
not political. Even before the single currency, EU competence extended over
virtually the whole Corpus Iuris of economic activity, from the
establishment of "the free movement of goods, persons, services and
capital" (the four freedoms proclaimed by Article 3 of the Treaty) to
external economic relationships. To understand how very political these
issues are, it should suffice to think about the place they take in the US
political debate today, or have taken in the politics of our countries
before the creation of the European Community. Moreover, the institutional
architecture of the European Union is entirely that of a political system,
not that of an international organisation based on intergovernmental co-
operation: a legislative capacity that prevails over that of Member States,
a judicial power, a directly elected Parliament.
Second, I do not concur with the idea that Monetary Union has
developed outside the political process. Quite the contrary is true. The
establishment of a single currency in the European Union has been achieved
because of the strong political determination of elected governments over a
full decade, from June 1988 to May 1998. It is significant that during that
long period continuity has not been broken by repeated changes of political
majority in virtually all countries except Germany. Technocrats, i.e.
central bankers, have "only" played their role, crucial as it may be. They
have provided expertise, from the drafting of the blueprint to the
preparatory work for the actual start of the system. And, no less
important, they have loyally accepted the limits of their role and
recognised that the ultimate decisions have belonged to elected
politicians. This is the meaning of the two statements of July 1988 and
March 1998 with which the Bundesbank has defined its position at the
beginning and the end of the crucial decade. "In der Beschrдnkung zeigt
sich der Meister".
The establishment of a single currency is a strongly political event in its genesis and a profound social and cultural change in its nature. As economists and central bankers we pay limited attention to notes and coins because they are a minor and endogenous component of the money stock. For many politicians, however, Monetary Union meant little else than a common banknote. They saw, better than us, that for the people money has to do with the perception of the society to which they belong and, ultimately, with their culture. As such, money goes well beyond the economic sphere of human action. Indeed, the act whereby we accept to provide goods or services to an unknown person in exchange for pieces of paper that have no intrinsic value is perhaps the most significant and widespread testimony of the social contract that binds people. This is why coinage and money printing have always been a prerogative of the State.
Yet, for two main reasons it remains true that Europe has a lack of political union. First, the European Union is still not the ultimate provider of internal and external security, the two key functions that constitute the raison d'кtre of the modern State. Second, EU institutions still fail to comply with the key constitutional principles that constitute the heritage of western democracies: foundation of the legislative and executive functions on the popular vote, majority principle, equilibrium of powers.
Why does the lack of political union constitute a challenge for the
Eurosystem? I would answer as follows.
In a period of less than thirty years money has abandoned both the anchors it has had since the earliest times: metal and the sovereign. It is true that central banks have struggled for years to free the printing press from the influence of the modern sovereign, as they struggled in the past to free it from the influence of private interests. It is equally true that the present status of the Eurosystem in the constellation of public powers is exceptionally favourable. However, only a superficial thinker could confuse independence with solitude and take the view that the lack of political union strengthens the position of the central bank and makes it freer to fulfil its mission.
The security on which a sound currency assesses its role cannot be provided exclusively by the central bank. It derives from a number of elements that only the State or, more broadly, a political union as previously defined, can provide. When we say that a currency is a "safe haven" we refer not only to the quality and credibility of its central bank, but to the solidity of the whole social, political and economic structure to which it belongs. And historical experience shows that when that structure appears to weaken, the currency weakens, irrespective of the actions of the central bank. A strong currency requires a strong economy and a strong polity, not only a competent central bank. The central bank is, and should remain, an institution with too limited a mission to replace the lack of a political union.
The problems posed by the coexistence of a single currency with a still unachieved political union will influence both practical and intellectual activity in the coming years. They will have implications for the central banker, the politician and, more generally, the citizen. For the politician the implication is that his political decision to move ahead with Monetary Union in advance of political union contains an implicit commitment to work for the completion of political union. The central banker should be aware of the special difficulties and responsibilities deriving from this anomalous condition. On the one hand he will have to cope with this situation and adapt his attitudes to a composite - EU and national - institutional architecture, one that lacks the simplicity he was used to and in which the Eurosystem now represents the most advanced supranational component. On the other he should be prepared for the further evolution of that same architecture. Finally, from the citizens that we all are, it will require a deeper reflection about the multiple "social contracts" he is part of, and the loyalties they entail.
8. CONCLUSION
I have been fortunate to operate in an environment in which no conflict has arisen between the central banking profession I have exercised for more than thirty years and the European conviction that, like many persons of my generation, I matured in my youth. Since the early '80s I have also been convinced that monetary union, i.e. a confluence of the two motives, was desirable and possible. At the same time, the challenges for the Eurosystem originate precisely from that confluence.
The challenges are not solely economic in their nature, nor can their
features be captured by the functional relationships economists are most
familiar with. Although partly related to economic factors, their features
are in fact tied to the special institutional environment to which the
Eurosystem now belongs. They derive from the tension between the completion
of the union in the monetary field and the incompleteness of the overall
construction. It is a tension because in that environment the notion of the
public interest is no longer as simply and statically defined as it was
when the Nation-State was an all-pervasive reality and the jurisdiction of
the central bank coincided with its jurisdiction. Inevitably, this tension
runs through the institutions of the European Union, the Eurosystem itself,
and even our minds.
A challenge is a call to a difficult task; it entails the two notions of necessity and difficulty. The problems I have tried to describe are a challenge not only for practitioners, but also for the academic profession, because their solutions can hardly be found in a textbook and will only be invented if the creativity of practitioners will be supplemented with that of scholars.
***
Monetary policy in EMU
Prof. Otmar Issing
Member of the executive board of the European Central Bank
Washington, D.C.
6 October 1998
1. Introduction
On 1 January 1999, the curtain will ri"+ !-+ 1999MAYOR99.DOC†[?]р?p-
-#"+ !-+ 1999INDUSTRIAL MARKETING.DOC?[?]р?x- -#"+ !-se on a world
premiиre. For the first time in history, sovereign states will abandon
their own currencies in favour of a common currency, and transfer their
monetary policy sovereignty to a newly created supranational institution.
This process is all the more unusual from a historical perspective because
the national currencies involved are not being abolished because of their
weakness. On the contrary, proof of a large measure of monetary stability
is demanded as a precondition for participation.
The decision has been taken. The Euro will start on time. It must not
- and it will not - fail. The European System of Central Banks (ESCB) will
devote its best endeavours to making European Monetary Union (EMU) a
success.
The French president recently called this unique project a "great
collective adventure". As a central banker I am generally not in favour of
"adventures" - but who would deny that there are risks and uncertainties in
this enterprise? You should be reassured that at the European Central Bank
(ECB), we have the necessary independence, instruments and tools to deal
with these risks and uncertainties in a successful way. I will discuss some
of these in a moment.
Moreover, when considering the uncertainties implied by the transition to Stage Three of EMU, we should not forget that Monetary Union will also reduce, or even eliminate, a number of risks. This has already been demonstrated, even before the actual introduction of the euro. Recent turmoil in international financial markets did not cause any significant disruption to exchange rates among currencies of the designated participants in Stage Three. This is a clear demonstration of the success of the EMU process.
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