The Euro and the Monetary Union

Article excerpt

Introduction

Ladies and gentlemen, it is a great pleasure and an honor to be with you today, on the occasion of the International Atlantic Economic Conference, and to present the Robert A. Mundell Address in front of such a distinguished audience. I have to say I am particularly honored and touched to express my views on the euro and its prospects following the successful launch of the notes and coins on 1 January, 2002, since Professor Mundell's works on the Optimal Currency Area theory are of the utmost interest and are the conceptual roots of the Economic and Monetary Union. I would like to take this opportunity to present my views on the successful set-up of the euro, on the economic and financial integration of Europe, and on the challenges that the euro-zone has to cope with.

The Euro: Built On A Successful Set Up

SET-UP OF THE EUROSYSTEM

The single monetary policy is formulated and implemented within a sound institutional framework, the Eurosystem, comprising the European Central Bank and the 12 national central banks of the euro area. Three principles are shaping up the Eurosystem: independence, transparency, and decentralization.

The independence of the European Central Bank (ECB) and national central banks is enshrined in the treaty. When exercising their powers and carrying out their tasks and duties, neither the central banks of the Eurosystem nor any member of its decision making bodies shall seek or take instructions from Community institutions, from any government of a Member State or from any other body. Independence means institutional, operational and financial independence. We consider that comprehensive concept as an essential contribution to the clarity and the credibility of the single monetary policy.

Transparency and communication are important. Elected authorities, key economic players, as well as all citizens must be fully informed on the conduct of the single monetary policy. At the European level, the ECB maintains a permanent dialogue with the European Council and the European Parliament, as national central banks do with national institutions. The ECB was maybe the first central bank in the world to introduce, on 1. January 1999, the concept of regular, frequent, real-time communication in the domain of monetary policy. Indeed, once a month, immediately after the meeting of the Governing Council, the president of the ECB holds a press conferences.

The independence of a central bank and its democratic accountability are two sides of the same coin. In this respect, both public speeches and testimonies by the president of the ECB and by the governors of national central banks, to the attention of institutions as well as public opinion, are significant. An important part of our collective duty consists in tirelessly explaining the reasons and the arguments that underpin the decisions of the Governing Council.

Lastly, decentralization is the subsidiarity principle which underlies the whole European construction. Decentralization is a major principle guiding the architecture of the Eurosystern. The Eurosystem is a team whose members work in close cooperation, and the team spirit is really strong and fruitful. Monetary policy decisions are taken, at the center, by the Governing Council, but are implemented by the national central banks in a closely coordinated way.

STRATEGY OF THE SINGLE MONETARY POLICY

The Maastricht Treaty clearly defines the ultimate objective of the single monetary policy, that is to say maintaining price stability. However, for this it is essential to have a clear definition of price stability: we define it as a year-on-year increase in the overall Harmonized Index of Consumer Prices (HICP) of below 2 percent in the whole euro area.

Bearing in mind this objective, our monetary policy strategy is based on two pillars. We have first assigned a key role to the monetary aggregate M3. …