Sylvester C.W. Eijffinger
The subject of this chapter is the design of European monetary policy. On 1 January 1999, the Economic and Monetary Union (EMU) started for the eleven member states of the European Union that complied with the convergence criteria set by the Maastricht Treaty. Since then, the European Central Bank (ECB) has conducted a common monetary policy for the countries that participate in the EMU. Of course, the preconditions for this European monetary policy are laid down in the Maastricht Treaty and the Statute of the ECB. However, a number of important decisions regarding the strategy and operational framework of European monetary policy have subsequently been taken by the Council of Ministers of Economics and Finance (Ecofin), the European Monetary Institute (EMI) and the ECB. In this chapter, I present an outline of the main points of discussion. I also give my personal views on how the ECB is to achieve its ultimate objective, i.e. to establish monetary stability in the EMU area. To structure the discussion, I take the transmission process (or mechanism) of monetary policy as organisational principle. 1 Therefore, in Section 6.2, I start with a discussion of the policy goal(s) of the ECB. Furthermore, the target(s) of European monetary policy are evaluated in Section 6.3. Then, the monetary indicator(s) of the ECB are discussed (Section 6.4). Next, we will evaluate the monetary instruments in the EMU (Section 6.5). Finally, I will discuss the way that the ECB operates in the money market (Section 6.6), and present my conclusions (Section 6.7). During the course of the chapter, I will try to draw some comparisons—which are sometimes very striking—between the monetary policy of the ECB and that of the Deutsche Bundesbank.
According to the Maastricht Treaty, a European System of Central Banks (ESCB), to consist of the ECB and the national central banks of all member states of the European Union, was to be established at the latest on 1 January 1999. The Treaty together with the Protocol on the Statute of the