European Monetary Policy: The Ongoing Debate on Conceptual Issues

S INCE January 1999, European monetary policy has been centralised in the form of the European System of Central Banks (ESCB) with the European Central Bank (ECB) at its core. This new monetary authority is quite unique in many aspects: It is supranational and has the sole responsibility for monetary policy in the entire euro area, which now includes twelve member countries of the European Union. It has a clear mandate by the Treaty on European Union to ensure price stability in the whole currency zone; other objectives, in particular those more related to output and employment in the euro economy, should only be addressed if price stability is maintained. The EU Treaty also guarantees the ECB’s operational independence as well as its independence from political interference. The presidents of the national central banks of the Eurosystem as members of the ECB Governing Council (together with the six members of the Executive Board) are supposed to pursue the goals of the monetary union as a whole; they should not act as delegates of their country of origin and should not base their decisions on national considerations. At the outset and for the sake of transparency and accountability, the ECB shaped and announced its stability-oriented monetary policy strategy (the ‘two pillar strategy’) and provided a quantitative definition of price stability. The transition from national monetary policies to a common European monetary policy took place without major technical problems. The public in the member countries has learned that the ECB must conduct its policy in a way which cannot take regional differences in price developments and stages in the business cycle into consideration. This implies that decisions which the ECB makes concerning