In Politeia’s EMU and… 1999 lecture series, Professor Gowland explained that the UK has a strong stake in the success of the ECB, whether or not it joins the Euro. Until the ECB achieves credibility, the UK will suffer from an over-valued exchange rate. This will cause major problems in itself and exacerbate the dilemma faced by those responsible for monetary policy. It will accentuate the north south divide.

Whilst markets over-estimate some of the ECB’s problems, it nevertheless faces serious difficulties. The jury is still out on whether the ECB will achieve credibility. Despite being modelled on the Bundesbank there are many features where opinions differ about how the new system will work. For example, will the relative secrecy of the Ecb reduce market confidence or increase it? The greatest problem facing the ECB is to persuade members of the Executive Council not to behave as rational delegates.

National interests and requirements do differ for a variety of reasons, but if the ECB is to achieve the hopes ascribed to it these must be subordinate to the goal of attaining credibility. There is likely to be a substantial impact on the UK financial sector, although this will be less dramatic than often argued. Some important questions, notably ones concerning banking supervision, need to be resolved.

David Gowland is Professor of Economics at the University of Derby. He is the author of Money, Unemployment and Inflation, The Regulation of Financial Markets in the 1990s and for Politeia Banking on Change: Independence, Regulation and the Bank of England. His forthcoming studies will be on The Economics of Modern Banking and Financial Change. He has also served as an economics adviser to the Bank of England and to the Prime Minister’s Policy Unit at 10 Downing Street.

The lecture which took place in April, 1999 will be followed by a pamphlet in which David Gowland considers the future role of the ECB.

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