Economic and Monetary Union.
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ECONOMIC AND MONETARY UNION For many, the launch of euro bank notes and coins in 2002 will symbolise the greatest achievement in post war European integration since the Treaty of Rome. For others it represents a premature step on the road to closer co-operation. This analysis will approach the contentious issue of Economic and Monetary Union by drawing upon two related themes: adjustment and co-ordination. The first will be situated within the debate surrounding the pros and cons of EMU participation. The second will consider the actual operation of EMU and the policy architecture, which governs its behaviour. The investigation will conclude with a brief introduction to the debate surrounding the UK's involvement with Economic and Monetary Union. But first there will be a short consideration of the political issues relating to EMU. THE POLITICS ECONOMY OF EMU As is usual in the case of the EU it can be argued that EMU is an economic means to a political end, increasing political integration. EMU had its political roots in the problems of the EMS, principally that for a stable system other Member States had to adjust their economic policy to conform to Bundesbank monetary policy. It came to be seen that a share of pooled sovereignty over monetary policy, was better than a largely illusory national sovereignty. This was particularly the case since increasingly governments were delegating monetary policy to independent national central banks. So the change to an independent European Central Bank did not seem that great. Since such a bank would set monetary policy based on the needs of the EMU area, rather than just one country, this seemed a distinct improvement. The extent of monetary independence exercised by such a bank, by virtue of the size of the area and its limited external trade, would be much greater than that enjoyed under EMU. Another impetus for EMU was provided by external events, with the fall of the Berlin Wall in 1989, German unification became a realistic possibility.
The ECB's primary objective is price stability. It is required to contribute to the achievement of other objectives of the Community such as non-inflationary growth and a high level of employment but only to the extent that this does not compromise the primary objective of price stability. To achieve these objectives the Eurosystem: defines and implements the monetary policy of the euro area; conducts foreign exchange operations and hold and manages the official reserves of the Member States; and issues banknotes and coins in the euro area The credibility and legitimacy of the ECB also requires that it be accountable (i.e. being held responsible for its actions) and transparent (explaining the reasons for its actions). Accountability is achieved in various ways through legal requirements: the publication of Annual Report; the attendance of the ECB President and other members of the EB at competent committees of the European Parliament. The President of Ecofin and a member of the Commission may attend GC meetings without having the right to vote. So far the president of Ecofin has seldom exercised this right. In addition to these legal requirements the president of the ECB gives press conferences every month and after interest rate changes, the ECB publishes a Monthly Bulletin and the EP holds regular hearings with ECB board members. In comparison with other central banks the ECB enjoys considerable independence this is shown by the legislative provisions governing its constitution and operation. Thus the governor and members of the EB are appointed by common accord of the Member States, have a long non-renewable term of office (8years) and are fully independent acting in a personal capacity. NCB governors are similarly required to be independent. The Eurosystem is given an overriding primary objective price stability and the final authority over monetary policy. It can be argued that ECB independence goes beyond this. The ECB's primary objective is rather vaguely defined "to maintain price stability."
II. EMU will place the EU on the road to a 'European Super State'. Obviously the idea of a Super State is based on the rather peculiar UK views about federalism in general, and especially in relation to the very decentralised confederal system of the EU. This is not to say that EMU does not have implications for the roles of EU and national institutions in decision making. EMU is more than a matter of monetary integration; the economic and political dimensions are just as important. As such there is some degree of truth in the claim that the single currency will demand further integration. In assessing whether or not such spill over demands the creation of a Super State, however, is controversial. It is clear that the economic dimension to EMU is proceeding on a largely intergovernmental footing. National sovereignty in matters of economic policy is, particularly in view of France and Germany's problems with the SGP, alive and well. By the same token, however, EMU has raised important questions about the legitimacy of the project and in particular about the issue of democratic accountability. Deeper integration in the field of economic policy will place greater emphasis on democracy of the system. Under one interpretation this will require a strengthening of the European Parliament's powers in this area. Conclusion It is difficult to be objective in debates over EMU, critical judgements hinge on the point of analytic departure. From the perspective of cost and benefits the case against EMU appears clear cut, while the criticisms of its operation are serious indeed. This perspective shifts somewhat when the theme of co-ordination is analysed. Measures have been put in place to pursue an appropriate policy mix in the euro zone, even if questions surrounding their efficiency arise. If the themes of adjustment and co-ordination are likely to occupy the British debate on EMU then so too will issues of convergence, exchange rate and political spill over. For pro and anti arguments alike, considerable caution must be exercised before any judgement is passed, particularly while it is still in its infancy.
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