Domestic Politics and
The breakdown in 1973 of the Bretton Woods system of fixed exchange rates marked a critical turning point for the world economy. Once freed from the obligation of maintaining parity, central banks began to increase their attention to the achievement of domestic goals. With that shift in view, this book has focused on the experiences of the central banks in three important countries: Germany, France, and Italy. We have noted how the degree of central bank independence proved to be a fundamental element in both the goals and the implementation of policy in these three nations. Yet, larger changes in the world economy—in particular, deepening financial integration—acted to diminish monetary autonomy and to enhance the prospects for European monetary cooperation. In effect, Europe's movement toward greater cooperation served to reinforce the dominant position of the Bundesbank, by far the most independent of our three central banks. Exactly what will result from these trends in the future cannot, of course, be foretold; some lessons from Europe's recent experience, however, can already be applied to help us better understand the process of economic policy-making. Here, in this concluding chapter, the process of application is arranged in three steps: I first review the argument of this book; then reassess the role of state structures in current theoretical debates about policy-making; and, finally, consider some broader implications of the changes now under way in Europe.