1. The role of the EMI in the process towards Economic and Monetary Union.
On 1st January, the European Monetary Institute came into existence, marking the transition to a new phase of European integration: the start of the second stage on the road towards Monetary Union.
The Statute defines clearly the crucial role assigned to the EMI by the Maastricht Treaty: with the objective of contributing to the "realization of the conditions necessary for the transition to the third stage", the EMI is entrusted with the tasks of "strengthening the co-ordination of monetary policies"; of "making the preparations required for.... a single monetary policy and.... a single currency" (art. 2); of performing consultative and advisory functions with the Governments of the Member States and Community Institutions (art. 5).
Potentially, the EMI represents a major improvement in the progress towards Monetary Union in comparison with the previous framework based on the Committee of Governors and its Subcommittees and Working Groups. The groups of experts direct expressions of the Central Banks, have given way to an Institution endowed with autonomous functions, legal personality, powers and resources. From a working method based on periodic contributions from members of different Institutions, there is now a single Institution organized on a permanent structure and with its own staff.
The role that the EMI will effectively be able to perform
will certainly depend on several factors; above all on the attitudes and
approaches that will prevail in its Council composed of representatives
from the Central Banks. Unquestionably, however, the tasks and the functions
assigned to the EMI imply some "objective" powers of initiative and proposal
that potentially transcend the explicit and "literal" contents of the Treaty
and the Statute. On the other hand, both the Treaty and the Statute state
that the Council of Ministers can grant new tasks to the EMI in addition
to those already assigned.
2. broad versus restrictive INTERPRETATIONS of the EMI's role.
Agreements that are the result of a confluence of many wills tend to contain elements of generality and indefiniteness that both cause and justify differing interpretations of various aspects of those agreements. In the move towards Monetary Union - and, more generally, during the preparations for European integration - the parties involved have always held different views regarding the breadth, pace, procedures and instruments that should characterize the evolution of those processes.
The EMI is no exception: different views concerning the actual role, functions and powers granted by the Treaty to this new subject confront each other. These views may be summarily divided between two coherent models: a broad and comprehensive vision of the EMI's role and another we can best define as "minimalist".
The first view sees in the EMI a high-profile authoritative Institution having wide capacity and power to co-ordinate monetary policies and take initiatives - also vis-a-vis Governments and Community Institutions - on issues relating to Central Bank activities; an adequately outward-looking approach that can make it a point of reference in its sphere of competence and perhaps even an institutional counterpart for market players and structures; functions which make it, in some respects, a forerunner of the European Central Bank, particularly in the fields of payment systems and the management of currency reserves. Such an Institution would be able - for some member States - to strengthen and accelerate the approach to the third stage, by progressively accomplishing its preliminary conditions.
The more restrictive interpretations of the EMI's role, on the other hand, tend to emphasize the Institution's activities that are more directly connected with preparations for the third stage: analysis, harmonization and formulation of the rules and infrastructure necessary for the conduct of a single monetary policy. In essence, these views aim to confine the EMI within a low-profile, technical role that is "internal" to the sphere of the Central banks. This approach clearly reveals a reluctance to give up elements of monetary sovereignty and, more generally, autonomy before effective conditions of convergence are achieved and the strategic, operative and organizational context in which the single monetary policy is to be carried out are precisely defined.
The existence of such different views should neither amaze nor worry since they tend - as the experience of European integration demonstrates - to resolve gradually into a harmonic and solid picture. The dialectic between the various views and positions makes it possible that issues - whose subsequent emergence could jeopardize the development of the process - come to a head at the right time.
The following description of the objectives, tasks, structure
and organization of the EMI is based on the assumption that a broad vision
of the EMI's role is necessary to assure consistency between the instruments
and the objectives assigned to it by the Treaty and the Statute.
3. Objectives, tasks and constraints for the EMI.
The Statute describes the objectives of the EMI as a contribution "to realization of the conditions necessary for the transition to the third stage of Economic and Monetary Union, in particular by strengthening the co-ordination of monetary policies...; making the preparations required for the establishment of the European System of Central Banks... and for the conduct of a single monetary policy ....; overseeing the development of the ECU" (art.2).
The functions and tasks of the EMI can be grouped into five categories, according to the nature and objects of the actions to be taken:
- functions of co-ordination of and stimulus to the co-operation among the central banks of Member States in the conduct of monetary and exchange rate policies during Stage Two and related issues;
- tasks of design, harmonization and realization of the rules, procedures and infrastructures necessary, in Stage Three, for the conduct of a single monetary policy and the creation of a common currency;
- consultative and advisory functions on the issues for which it is competent vis-a-vis Governments and Community Institutions;
- other functions of initiative and promotion with potentially wide "external" impact: the ECU and cross-border payments;
- operational and technical functions, concerning in particular the EMS and the management of foreign currency reserves conferred by Central Banks.
In the performance of these tasks and functions, the EMI
shall act "without prejudice to the objective of price stability (art.
2 of the Statute of the ESCB); in accordance with the general principles
of the European Community - "harmonious and balanced development.....sustainable
and non inflationary growth respecting the environment,....convergence...
social protection.....cohesion and solidarity...."(art. 2 of the Treaty)
and with that "of an open market with free competition" (art. 4.2 of the
Statute); but also with the specific limitation of not causing "prejudice
to the responsibility of competent authorities for the conduct of the monetary
policy within the respective Member States" (art. 3.1 of the EMI's Statute).
3.1. The function of co-ordination in the field of monetary and exchange rate policy
The Statute assigns to the EMI the "primary tasks" of strengthening "the co-operation between the Central Banks" and "the co-ordination of the monetary policies.....with the aim of ensuring price stability"; of monitoring "the functioning of the EMS"; of holding consultation on issues concerning monetary policy, central banks and the stability of financial Institutions and markets; of being "normally" consulted ex ante by national authorities on monetary policy decisions and measures (art. 4.1 of the Statute).
These tasks are included within the context of a general co-ordination of central banks' activities which is explicitly considered, in the definition of the EMI's objectives (see above sub 3), as instrumental to the realization of conditions necessary for transition to stage three.
Nonetheless, great uncertainty exists concerning the breadth and depth of the role that the EMI is to perform within this framework. The EMI cannot, in fact, interfere with national monetary policies, for which, during the Stage Two, responsibility is retained by national authorities. This statutory rule indirectly gives normative effect to the principle of the "indivisibility" of monetary policy which, in practise, states that the independence and the efficiency of monetary policy cannot be guaranteed when the responsibility of carrying it out is divided among various Institutions and bodies.
An interpretation of the EMI's role particularly aimed at preserving during Stage Two this "indivisibility" exclusively in the hands of national central Banks would tend to impose severe limits on the EMI's ability to undertake incisive initiatives of co-ordination among National Monetary Authorities.
On the other hand, the EMI's task of preparing the ground for the conduct of a single monetary policy implies that "a high degree of monetary policy co-ordination has been achieved prior to Stage Three, that in practice a common monetary policy stance emerges in the Community before the step to a single monetary policy is taken ".
It seems, therefore, reasonable - as well as desirable - that during the course of Stage Two the EMI exerts pragmatically, but progressively, increasing pressure on National Monetary Authorities in order to orientate their policies and actions towards the objectives of co-ordination and convergence.
On the other hand, the explicit reference to price stability as the principal goal - together with preparation of Stage Three - of co-ordination reduces the area of potential conflicts with National Central Banks, which are required by the Treaty, to orientate their actions towards that objective.
The powers granted to the EMI by the Treaty and the Statute for strengthening the co-ordination of monetary policies are not very stringent. The EMI, as already mentioned, can hold consultations on issues falling within the competence of central banks and " shall ... normally be consulted" on monetary policy decisions "in the context ... of the ex ante co-ordination" (art.4.1 of the Statute), already functioning within the Committee of Governors. In performing its advisory functions (see below sub 3.3), the EMI "may formulate opinions and recommendations" - which are, nevertheless, not binding - on the overall orientation of monetary and exchange rate policies and on related measures introduced in individual Member States (art.5.1).
The EMI's most concrete and effective instruments would seem, in conclusion, "analysis and persuasion" .and, therefore, such credibility as it will be able to gain in its activities of analysis, project-making and leadership. A unanimous decision of the Council of Ministers, however, makes it possible to assign new tasks to the EMI for the preparation of the third stage. On the other hand, nothing should prevent the EMI - in the performance of its institutional functions and with the consent of national Central Banks - from acquiring new instruments of co-ordination such as, for example, the definition and monitoring of common monetary targets, or the announcement to the markets of the orientation of monetary and exchange rate policies.
An important field in which considerable effort will need
to be made in co-ordinating policies is that of maintaining an adequate
stability in the exchange rates. That stability represents both an important
prerequisite for the transition to Stage Three and a necessary condition
for the proper functioning of the single market, in the medium term. In
particular, an important role could be played by the EMI in the definition
of the rules, characteristics and launching of a "new" EMS.
3.2. Tasks directly connected with the preparation of Stage three.
"At the latest by 31 December 1996, the EMI shall specify the regulatory, organizational and logistical framework necessary for the European System of Central Banks to perform its tasks in the third stage" (art.4.2. of the Statute).
The EMI has thus to prepare the strategy, instruments, rules and operational procedures relating to the conduct of a single monetary policy, while at the same time, where necessary, harmonizing the existing framework and even designing the required infrastructure for, in particular, the collection of statistics, the payment system and the technical preparation of the banknotes denominated in the future single currency, the Ecu.
On the basis of the selected model of monetary policy - centralized/decentralized; based on interventions in the markets or on intermediaries - the EMI will have to detect the divergences and contradictions between the logical approaches and the operational schemes of the national Central Banks which have to be removed for the transition to Stage Three to be possible.
In these tasks the EMI will continue the work started by the Committee of Governors, the preliminary stages of which are almost concluded. In the phase now beginning all the final projects - such as the operational schemes of the European Central Bank and European System of Central Banks, their statistical and information systems, more integrated and harmonized payment system, and the single currency banknotes - need to be prepared and tested.
In these areas, the role of the EMI appears to be less
questionable than in the functions of co-ordination previously described;
probably because the former activities are more "internal" and under the
control of Central Banks than the latter. It is possible, however, that
the EMI could, on occasion, face problems in its relations with national
Central Banks - and, in the field of statistics, with national Statistical
Institutes - on issues related to the collection of information and the
formulation and evaluation of projects and solutions. It would be therefore
desirable for some general form of co-ordination powers to be attributed
tacitly to the EMI in order to facilitate the performance of its tasks.
3.3. Advisory functions and faculties of stimulus and initiative with respect to Governments and Institutions.
The Treaty and the Statute grant to the EMI highly important functions of advice and consultation in its dealings with Governments and Institutions.
The EMI "may formulate opinions or recommendations on the overall orientation of monetary policy and exchange rate policy as well as on related measures introduced in each Member State" (art. 5.1 of the Statute), and in general, on all policies which may generate monetary effects. Moreover, the EMI has to be consulted by the Council of Ministers and by the Member States on "every draft legislation provisions" falling in its field of competence.
Another task that will give the EMI an opportunity of making public assessments on monetary and financial conditions in the Community and individual Member States is represented by the report on the state of preparations for the third stage to be submitted each year by the Institute to the European Council. The report will review and assess the progress of both individual Member States towards the convergence requirements described in the Treaty and national central Banks towards the independence necessary for participating in the ESCB.
The advisory and consultative tasks give to the EMI a
role of potentially high institutional profile and a markedly outward-looking
perspective. The actual use of these potentialities will nevertheless depend
on the interpretation given by the President and the Council of the EMI
to the role of EMI.
3.4. Other tasks of initiative and promotion with a broad "external" projection.
Among the "primary tasks" of the EMI, the Treaty and the Statute place that of facilitating the use of the ECU and overseeing its development together with the smooth functioning of the Ecuclearing system.
One of the EMI's tasks is, therefore, to take initiatives aimed at the gradual elimination of obstacles to the use of the Ecu.
In a survey promoted by the Committee of Governors, obstacles to the use of the Ecu have been identified in both regulatory factors - objective restrictions deriving from rules that either hinder or discriminate the Ecu - and inefficiencies linked to the inadequate development of the ECU market structures, particularly in the monetary segment and payment systems.
As far as the regulatory obstacles are concerned, the EMI's initiatives could take the form of recommendations to Governments and Institutions, where discriminations exist in any Member State between the Ecu and other foreign currencies.
Of greater complexity and importance is the role that the EMI should play in removing or, at least, minimizing non-regulatory obstacles to the use and development of the Ecu. The EMI's initiatives in this respect should aim at enhancing and strengthening the structures of the Ecu market - which is an anticipation of the single currency market - with the involvement of all the interest parties, including market players, under its guidance.
A specific task is assigned to the EMI in overseeing the Ecuclearing. This function could even develop into an operational activity if the EMI entirely replaces the BIS in its role within the Ecuclearing system.
In general, an important sector in which the EMI can develop
initiatives and proposals with extensive "external" implications is that
of cross-border payments. More precisely, the task of promoting "the efficiency
of cross-border payments" is included among those more closely connected
with preparation for the third stage. It is clear, however, that this task
cannot be limited exclusively to an analysis of the issues and a description
of the "optimum" payment system to be implemented in the third stage. It
implies continuous contacts with and coordination of all the interested
parties, aimed to removing the existing obstacles to integration/standardization
of national payment systems and procedures. It is unthinkable that structural
changes in the payment systems - such as those presumably required for
the conduct of a single monetary policy and the introduction of the single
currency - can be implemented overnight or after the start of stage three.
3.5. Technical and operational functions.
The EMI has inherited the functions performed within the EMS by the European Monetary Co-operation Fund (EMCF). In particular (art. 6 of the Statute), "it provides for the multilateralization" and settlement of "positions resulting from currency market interventions" made by national Central Banks, "it administers the very-short term financing mechanism and the short-term support mechanism" and performs the functions assigned to it in EEC medium-term financial assistance to Member States. The EMI is the counterpart of national central banks in the gold and currency swaps provided for by EMS Agreements. It can issue "official" Ecu against monetary reserves received from national central banks and, subject to specific conditions and restrictions, from third countries and international institutions. This function, if adequately carried out, could give the "official" Ecu a status somewhat similar to that of the SDR, i.e. an official reserve instrument without a corresponding currency market.
The EMI can hold and manage foreign currency reserves for the account of central banks of Member States, on the basis of bilateral agreements, that establish the acceptance, by the depositing central bank, of the risks involved. Depending on the extent to which this faculty is actually exerted, it could lead to the first real attribution to the EMI of an important typical central bank activity, with additional positive consequences in terms of expertise, creation of technical-organizational resources and skills useful for the future European Central Bank, greater emphasis on the EMI's external role, etc.
Moreover, the development of an efficient investment capacity
would foster the allocation to the EMI of management of the official reserves
formally swapped against the "official" Ecu, but actually managed by individual
4. The organizational structure of the EMI
The structure of the EMI is only summarily described in the Treaty and in the Statute. The Institute's organs are the Council - with powers of general direction and management - and the President, who represents the Institute and is responsible for day-to-day administration.
The members of the Council are the Governors of the central banks of the Member States and the President, who organizes and chairs meetings. The President is appointed by the Heads of State and Government, on the recommendation of the EMI's Council. A Vice President is elected then among the Members of the Council and performs the duties of the President when the latter is absent.
The delays in ratifying the Treaty of Maastricht have involved a corresponding deferment, not only in the actual operation of the EMI, but also in the definition of its internal structure and organization.
Before the EMI will be fully installed in its Frankfurt seat, towards the end of 1994, the fulfilment of the EMI's functions is made possible by the extension, beyond the end of Stage One, of the groups of experts established by the Committee of Governors. Naturally, these bodies operate under the direction of the EMI. During this period, the Institute will gradually acquire its final structure on the basis of the organizational chart approved by the Council at its first meeting.
The structure will consist of five Departments co-ordinated by a General Manager who reports to the President:
- the Monetary Economic and Statistical Department will have responsibility in the areas of research, analysis and planning in connection with the assessment of convergence, the design of the model for a single monetary policy and its operational procedures, the related information-statistical base;
- the Secretariat will presumably carry out the activities connected with the functions of co-ordination and "external presence" of the EMI (relations with Governments and European Institutions);
- the Information and Communications Department will design and implement the infrastructure that will manage the flows of information and technological communication inside the European System of Central Banks;
- the Administrative Department will deal with issues concerning personnel, accounting and internal administration;
- the Finance Department - which, for the time being is only formally indicated - should perform the technical and operational functions described in the Statute. In particular, it should manage and invest the reserves that national central banks voluntarily deposit and perhaps those connected with swaps against "official" Ecu. This unit should also manage the EMI's own resources and carry out the operational tasks linked with the Ecuclearing. In order to perform these functions, the Finance Department should be endowed with adequate structures - both operational and technological - and internal resources for technical analysis.
The development of the EMI's structure will depend on
the effective evolution and specification of its functions, which are sofar
only summarily outlined. In the writer's opinion, the rapid and confident
transition to Stage Three will very likely imply both an increase in the
functions and a strengthening of the structure of the EMI; at the same
time, a wider role for the EMI will certainly represent a decisive factor
in the success of that transition.