European monetary union is an important milestone on the road to unification of Europe. The long and winding road of European integration is accurately described by Siebert and Koop (1993:1) as follows: ‘The road Western Europe took from the end of World War II to its current state has been one with lots of steep and sometimes blind curves, with harsh speed limits and frequent detours. But still it has been one that attracted more and more traffic.’ Siebert and Koop interpret the competition among governments in a fashion similar to Tiebout (1956), i.e. as a market for institutional arrangements. In institutional competition, the national governments strive to find ever better institutional arrangements in order to keep mobile factors at home or to attract them.
With the establishment of the European Central Bank (ECB), competition among the participating countries to have the ‘best central bank constitution’ will be over. The introduction of the euro will eliminate competition to see which one has the ‘best currency’. The political decision in favour of this radical institutional change was taken when the Maastricht Treaty was ratified. As is shown not least by the debate on the ECB’s accountability, the new institution will not find it easy to hold its own in a critical environment.
On 1 March 1948, the Bank deutscher Länder was created as a central banking system for post-war western Germany, to be succeeded in 1957 by the Deutsche Bundesbank. No one could possibly have had an inkling, at the time, of what a success story this institution would become. The German mark has become one of the most stable currencies in the world and, to that extent, the Bundesbank has set a standard for monetary policy.
It thus seemed fitting to investigate the reasons for this success. Time and again, it has been shown to be the case that the stability of the German mark is founded on two factors: first, the statute of the central bank, and,