Toward a European Central Bank
Previous chapters in this book have focused primarily on the relationships between central banks and national governments. For clarity of exposition, international regimes—in particular, exchange rate regimes—have been treated as exogenous influences on central bank behavior. Yet such exchange rate regimes have increasingly become endogenous to the policy-making process. By the mid-1980s the member states of the European Community—and, in particular, Germany, France, and Italy—came to consider the creation of a broader monetary regime essential to their national economic objectives. In this context the politics of central bank independence shifted from the national to the European level.
This chapter examines the efforts of the European Community to promote greater exchange rate stability and to achieve monetary integration. Over the past twenty years, those efforts have led to three successive phases of monetary cooperation, each one marked by a distinctive institution. The first was the European Exchange Rate Agreement (or snake), which operated from 1972 until 1979. The second is the European Monetary System, which was established in 1979 and which continues in operation. The third carries the title of Economic and Monetary Union. EMU, as it is called, entails the creation of a common European monetary policy, a single European currency, and, most significantly, a supranational European central bank. In the present economic situation, the overall importance of the EMU initiative could hardly be exaggerated. As The Economist explains: "More than any other great issue the European Community has faced,