OP:9. Central Banking in a Monetary Union: Reflections on the Proposed Statute of the European Central Bank
Author(s): A Giovannini
Publication Date: August 1992

Abstract: This paper discusses the statutes of the European central bank as proposed in the amendments to the Treaty of Rome endorsed by the European Council in Maastricht in December 1991. For this purpose, the paper adopts a classification of central banking operations as those pertaining monetary policy and those pertaining banking policy. The statutes of the European central bank resemble to a significant extent the Bundesbank Act, but assign to the central bank more independence than the law instituting the German central bank. Like the Bundesbank Act, the statutes of the European central bank envisage maximum independence of monetary policy in a regime where the single European currency floats against other currencies. Under fixed exchange rates, however, decisions about parities and their changes have to be shared with finance ministries. The paper argues that, as far as monetary policy is concerned, the independence granted to the central bank by the law is only a necessary, but not a sufficient condition for effective monetary poli- cy. This argument is based on the analysis of the experi- ence of the Federal Reserve and the Bundesbank. With re- spect to banking policy, the paper argues that the subsid- iary role of the European central bank in the field of banking supervision and regulation may hinder its effective- ness. The European central bank needs full access to all information regarding the conditions of all financial inter- mediaries located in its territory, in order to avoid the inappropriate use of lender-of-last-resort facilities. Finally, the paper argues the need for a single and brand new wholesale payments system, to support an efficient Europe-wide money market. Without it, it is possible that the gains from the monetary union will be significantly curtailed.