Abstract:
This paper explores the evolving relationship between central banks and
governments in the European monetary unification process. In particular, it
focuses on the institution-building phase (setting up of the ECB) and the
monetary and macro-economic policy mix within EMU. I attribute the undeniable
success of the institution-building phase to an exceptional convergence of
favourable facts and influences. Most importantly: the strong political
commitment of the governments concerned; the trust placed in central bank
experts in preparing the Maastricht Treaty; the incremental momentum resulting
from the tight timetable; and, last but not least, the prevailing
macro-economic conditions. As for the monetary and macro-economic policy mix,
it is argued that in the run-up to achieving EMU the convergence criteria
spelled out by the Maastricht Treaty proved a very effective tool in aligning
national policies and in consolidating central bank independence (which became,
in fact, the "sixth" convergence criterion, conditioning access to
EMU). However, since the late 1990s, this delicate balance seems to have become
rather less secure for mainly three reasons: the weakening restraint of
politicians with regards to monetary policymaking; the worsening performance of
the economy in the euro area; and the fact that economic union continues to lag
monetary union, particularly with respect to micro or supply side reforms.
Keywords: central bank, government, cooperation, European Monetary Union,
European Central Bank, monetary and financial stability
