Jakob de Haan
At the stroke of midnight on 1 January 1999, eleven European Union (EU) countries launched a single currency, the euro. For the first time since the Roman Empire, a large portion of Europe now shares a common currency. After 50 years, the Deutsche Bundesbank—the central bank that ruled European monetary affairs—stepped down to entrust monetary policy to the European Central Bank (ECB). Since the start of the Economic and Monetary Union (EMU) in Europe, the ECB determines monetary policy in Europe. Like the other ten national central banks in the euro area, the Bundesbank is part of the European System of Central Banks (ESCB). While the ECB is responsible for policy decisions, national central banks play a role in implementing monetary policy.
The statutes of the ECB are largely modelled after the law that governs the Bundesbank. No doubt, this has something to do with the success of the Bundesbank in keeping inflation low. What lessons can be learnt for the ECB from the experience of the Bundesbank?
The Maastricht Treaty has made the ECB very independent. Nowadays, it is widely believed that a high level of central bank independence and an explicit mandate for the bank to restrain inflation are important institutional devices to assure price stability. It is thought that an independent central bank can give full priority to low levels of inflation. In countries with a more dependent central bank, other considerations (notably, reelection perspectives of politicians and a low level of unemployment) may interfere with the objective of price stability. In that context, the Bundesbank is often mentioned as an example. The German central bank is widely believed to be very independent. Still, the Bundesbank did not operate in a political vacuum. Indeed, as Maier and de Haan (Chapter 2) show in their review of the empirical research on political influence on the Bundesbank, there is at least some evidence that the Bundesbank sometimes had to trade off political demands and price stability.
Berger and Schneider (Chapter 3) present new evidence on the relationship between the Bundesbank and German government. They conclude that the Bundesbank is indeed not free from political pressure. The authors also argue that the Bundesbank had reason to yield to the government at