6. Looking ahead
The Maastricht Treaty provides the necessary foundations for a
successful monetary policy. It has enshrined the principle of central
bank independence, endowed with a high degree of political legitimacy,
and it has assigned the ESCB the clear mandate of maintaining price
stability. The Governing Council of the ECB has presented its
stability-oriented monetary policy strategy, which provides a coherent
framework for its policy decisions and - together with the quantified
definition of its overriding objective of price stability - furnishes a
clear and "honest" basis for its accountability vis-`-vis the European
public. At the same time, it takes account of the unique challenges
and
uncertainties facing the euro area. One should add that, of course,
the
ECB also has at its disposal the necessary policy instruments to
implement its strategy and to attain its primary objective of price
stability over the medium term. The Governing Council of the ECB has
already demonstrated that it can act decisively wit
h the co-ordinated interest rate move in early December even before the
euro was born. This has reduced the uncertainty in the markets and
cleared the way for a smooth start of the new currency. The past four
weeks have made for a promising beginning.
Thus, looking ahead, what will be the principal concerns regarding
the longer-term health of the euro? There can be no doubt in anybody's
mind that the ECB is determined and well-equipped to maintain price
stability successfully in the euro area over the medium term. It will
thereby do its part in contributing to the wider objectives of the
Community.
In particular, safeguarding the value of the currency is a crucial
precondition for long-term investment, sustainable growth and
employment
creation. The maintenance of price stability is a task that should
never be underestimated. The appropriately forward-looking assessment
of future risks of inflationary or deflationary pressures in the
economy
will tend to be finely balanced at any point in time. Those
commentators who call for monetary policy to be simultaneously directed
at objectives other than price stability often forget this. We always
need to be clear about what monetary policy can do and equally what it
cannot do.
This brings me to the possible risks inside Monetary Union. The ECB
will do its job, but can we be equally confident that everybody else
will do theirs? Europe suffers intolerably high rates of unemployment.
For the most part, this unemployment is structural in nature and needs
to be addressed urgently through labour market reforms and increased
flexibility in the wage-setting process. It is a dangerous and
counterproductive illusion that any of this could be helped by printing
money, quite on the contrary. Monetary Union should take away that
illusion once and for all. National governments and social partners
must shoulder their responsibilities and one can only hope that the
introduction of the euro serves as a "catalyst for change" and triggers
the badly needed structural reforms at the national level.
There have recently been calls for greater policy co-ordination among
the euro area countries. Much has been made of the clear asymmetry in
the Maastricht construction, ie the combination of a centralised single
monetary policy alongside continued national responsibilities for most
other areas of economic policy-making. While this may be a reflection
of political realities and the requirements of subsidiarity, it would
be
premature to conclude that the Maastricht construction was devoid of
economic logic. On the contrary, Monetary Union, above all, calls for
a
greater need for flexibility as well as discipline in wage-setting and
budgetary policies and a better functioning of market adjustment
mechanisms.
Precisely because monetary policy can no longer respond to national
conditions, the exact opposite of greater centralisation and
harmonisation may be required in other areas. Talk of uniform European
wage-setting or an ambitious social union is going in the wrong
direction; different productivity and real economic conditions across
the euro area must be taken into account more than ever. Following
similar reasoning, there is a strong case for retaining and even
strengthening national (and in some cases "sub-national")
responsibilities for fiscal policies. Indeed one reason for the
Stability and Growth Pact being aimed at budgets that are close to
balance or in surplus in normal times is to recover the room for
manoeuvre for fiscal policy required to let automatic stabilisers
operate effectively to smooth out national and regional business
cycles.
As long as the letter and the spirit of the Stability and Growth Pact
are respected, national fiscal policies are free to use the remaining
room for manoeuvre as best fits national circumstances and preferences.
This should also be sufficient to prevent gross imbalances in the
aggregate monetary-fiscal policy mix. Beyond that, it is not quite
clear to me what any further "co-ordination", over and above the
regular
exchange of views and data, could possibly achieve. In particular, it
would seem highly unrealistic, impractical and counterproductive if
attempts were to be made at European-wide "Keynesian-style" fine-tuning
and demand management among 11 Finance Ministers. Such attempts have
proven a failure in the past, even at the national level, where the
institutional preconditions would appear to be much more congenial.
The Maastricht Treaty provides for a clear assignment of
responsibilities. Monetary policy is centralised at the European level
and has been given the single overriding objective of price stability.
Fiscal policy and most other areas of economic policy-making remain
largely rooted at the national level. Nevertheless, it is obvious -
and
the Treaty recognises this - that monetary policy does not operate in a
vacuum. Unfavourable developments in other policy areas, in
particular
wages and fiscal polices, can place additional burdens on monetary
policy and make the maintenance of price stability more difficult for
the ECB.
Therefore, it is natural that the ECB will participate in a
continuous dialogue with European and national officials in a number of
institutional settings, and we shall not hesitate to engage actively
in
the wider economic debate in Europe. However, this dialogue or any
form
of co-operation must not at any time blur the respective fundamental
responsibilities. Without a clear assignment of responsibilities,
policies are unlikely to be conducted in an effective and credible
manner. Moreover, without it, there can be no meaningful
accountability
towards the ultimate sovereign - the people of Europe.
7. Monetary Union and political union
In European Economic and Monetary Union sovereignty, which in any
democracy ultimately belongs to the people, is delegated to a new
supranational European institution as far as monetary policy is
concerned. At the same time, the Euro-system has been assigned a clear
and limited mandate, ie to maintain price stability in the euro area,
which it is to pursue free of political interference. This "twin
transfer of sovereignty" in the monetary field - pooled at the European
level and exercised through an independent central bank - is at the
heart of the Maastricht Treaty. To be successful over the longer term,
the ECB as the guardian of the euro, like any institution in a
democracy, will have to win and maintain the trust and support of the
European public.
Historically, currency jurisdictions and national borders have tended
to coincide. This reflects the simple fact that the right to issue
money has always been a key attribute of national sovereignty and
therefore monetary union would not appear to be just a small and
innocuous step of a primarily technical nature. One is indeed hard
pressed to find any precedent in history, where sovereign nation states
voluntarily ceded sovereignty in the monetary field to a genuinely
supranational body. It is therefore clear that European Economic and
Monetary Union has been and will continue to be not just an economic,
but also a political project. Indeed, as I mentioned at the beginning
of my speech, the European integration process as a whole has been
characterised by an interplay of political and economic forces and
motivations.
Perhaps in no other Member State of the European Union is the
political dimension of EMU debated as fiercely as in the United
Kingdom.
The perceived "loss of sovereignty" has raised fears that the single
currency might open the floodgates to a centralised European "super
state" run by unelected and "faceless bureaucrats". Baroness Thatcher
has famously called the Maastricht Treaty a "treaty too far". Others
make no secret of their view that, on the contrary, it is a treaty "not
far enough". They believe that the single currency can be used as a
vehicle towards the ultimate objective of greater political union and
that further integration in other policy areas would be required to
make
European Economic and Monetary Union work.
I have always found the idea that a single currency could be used as
a "pace-setter", which would itself trigger further political
integration, to be highly doubtful and extremely risky. The stability
of the currency is too important a goal in itself and must not be
overburdened with not strictly related political ambitions, however
worthy these may be. Indeed, some commentators, such as the Berkeley
economist Maurice Obstfeld, have warned that Europe "has taken a gamble
in placing monetary unification so far ahead of political
unification".
However, in this whole debate the precise meaning of political union
and
the link to monetary union often remain unclear. It is certainly hard
to draw a direct line from monetary union to, say, a common foreign
policy.
What is required, to my mind, for a successful monetary union is a
sufficient degree of political commitment by all participating
countries, the leading economic actors and the wider public to accept
fundamentally and genuinely the political and economic constraints that
a single and stable currency represents. The deeper underlying
commitment to make European integration a success even in the most
difficult of times in history gives some general grounds for hope on
this count. Some degree of political unity (not necessarily union), or
rather a sense of common responsibility would appear to be important
for
the long-run health of EMU. However, it is not a substitute for the
right economic conditions for lasting success.
The Maastricht Treaty, together with the Stability and Growth Pact
adopted subsequently, provides the necessary foundations for stable
money, sound economic policies and a flourishing free market economy in
Europe. In particular, a single European monetary policy is
compatible
with responsibilities for many other policy areas, remaining firmly
rooted at the national level, as long as the minimum set of common
objectives, principles and rules established in the Treaty are followed
in letter and in spirit.
Most importantly, the delegation of monetary policy to an independent
and European institution does not at all contradict the basic
principles
of democratic legitimacy. On the contrary, because the ECB is given a
precise and limited mandate, ratified by all 15 national parliaments,
it
can and will be held accountable effectively for its performance by the
European public and its elected representatives.
My conviction that the Maastricht Treaty offers a sound and
convincing framework for economic policy-making in Europe, even with
the
presently very limited degree of political integration in other areas,
does not mean that current institutions and structures in the European
Union will and should be cast in stone. All durably successful
institutions need to adapt as circumstances change, as has been the
case
for the institutions of British democracy.
This has been and will continue to be true for the further evolution
of European integration. The birth of the euro four weeks ago, on 1
January 1999, is certainly not the end of history, nor is it the sudden
dawn of an entirely new age. It is, however, an important milestone
on
the road of European integration. It is a vision that has become
reality. But it is now a reality that requires a constant vigil against
manifold risks and, more prosaically, continued plain hard work to
turn
it into a lasting success. The ECB is prepared to do its part.
