The creation of the European Monetary Institute (EMI) on 1st January 1994 marked the beginning of the second stage of Economic and Monetary Union. The EMI is a transitional body; its mission will be completed when the European Central Bank (ECB) is established and the final stage of EMU starts. The EMI's transitory existence mirrors the current process of monetary integration of the European Community. Monetary policy still falls within the competence of Member States. However, the Member States have committed themselves to realising economic and monetary union in three stages, with the third stage starting on 1st January 1999 at the latest. The current second stage of EMU is designed to make all the preparations necessary for the move to Stage Three.
The particular mission of the EMI is already mirrored in its name. The term "European" denotes its status as a body of the European Union. The term, "Monetary" refers to the monetary policy field. The term "Institute" clearly shows that, on the one hand, the EMI is not yet a central bank; yet, or the other, the EMI is more than a committee of central bank governors. It has its own identity and infrastructure.
The tasks of the EMI are all clearly related to the achievement of the goal of EMU. In broad terms, they fall into two categories:
The strengthening of the co-ordination of the monetary policies of Member States
The strengthening of the co-ordination of the monetary policies of Member States is a crucial element of the first category of tasks. By performing this task, the EMI contributes to the fulfilment of the macroeconomic conditions necessary for entering Stage Three of EMU. The Treaty explicitly stipulates that the co-ordination of monetary policies aims at ensuring price stability. The latter is one of the so-called convergence criteria which Member States have to fulfil in order to qualify for entering the third stage of EMU.
In Stage Two of EMU, the Member States remain responsible for the conduct of monetary policies. The EMI is not actively involved in monetary policy operations, nor does it have any specific powers to enforce the co-ordination of monetary policies. Rather, when performing its task of strengthening the co-ordination of monetary policies, the EMI relies on the tools of analysis and persuasion. Regular consultations are held on the course of monetary policies and the use of monetary policy instruments. Furthermore, the EMI is to be consulted by the national monetary authorities before they adopt their monetary policy targets for the year ahead. Such consultations take place in a multilateral framework, normally towards the end of each year.
In the context of its task to strengthen the co-ordination of monetary policies, the EMI may also give advice. It may formulate opinions or recommendations on the overall orientation of monetary and exchange rate policies in the European Union as well as on related measures introduced in each Member State; it may make recommendations to the national monetary authorities concerning the conduct of their monetary policy and, finally, the EMI may submit its opinions and recommendations to national governments and to the Council of Ministers on policies which might affect the internal or external monetary situation in the European Union and, in particular, the functioning of the EMS. Such policies include fiscal policies in particular in the Member States of the European Union which are the subject of regular analysis by the EMI.
Other activities which fall within the first category of tasks are:
- the monitoring of the functioning of the European Monetary System (EMS) and the administration of the EMS mechanisms;
- consultations on issues affecting the stability of financial institutions and markets;
- support to central banks in the oversight of cross-border participation
in payment systems as well as the oversight of the ECU clearing
In all of these fields of activity pertaining to the first category of tasks, the EMI plays a consultative, advisory and supervisory role. In contrast, its work with respect to the tasks which fall within the second category, i.e. the preparatory work for Stage Three, is of a conceptual nature.
The preparatory work for Stage Three
The implementation of Monetary Union does not only require satisfactory conditions in macroeconomic terms. For the conduct of the single monetary policy, a regulatory, organisational and logistical framework has to be created. The EMI has been entrusted with the task of specifying this framework which is necessary for the ESCB to perform its tasks.
The framework which the EMI has to develop comprises a wide range of topics. For the conduct of the single monetary policy, it will be necessary to formulate the strategy as well as to define the monetary policy instruments; these instruments will have to be uniform or at least display a high degree of harmonisation. The instruments to be developed include the instruments for the conduct of the single exchange rate policy which will also be conducted by the ESCB.
The evaluation of alternative monetary policy instruments and operating procedures is based on a number of basic principles:
For the conduct of the single monetary policy, it is essential that the ESCB can operate in a single money market; a single money market presupposes arbitrage possibilities between the local centres of the single money market and hence a Monetary Union-wide system which allows cross-border transfers in real time. This will be possible through the TARGET system, which has been developed by the EMI and is currently being prepared.
Reliable statistics will also be an essential corollary of the conduct of the single monetary policy. The EMI's work will lay the foundation for a common statistical base in the relevant areas, in particular those of money and banking statistics and statistics relating to the capital flows in the balance of payments.
Another prerequisite of the single monetary policy will be an appropriate infrastructure of the ESCB. This includes aspects of the physical setting-up of the ECB, the integration of information systems of the NCBs, as well as harmonised accounting rules and standards for the ESCB.
A further aspect of the EMI's preparatory work relates to the changeover to the single currency which has recently been baptised the "euro". Pursuant to the Treaty, the EMI has been preparing the euro banknotes, which will be issued by 1st January 2002 at the latest. However, the EMI's preparatory work has gone beyond this specific aspect of the single currency and also deals with the general aspects of the changeover to the single currency. In late 1995 the EMI presented a reference scenario for the changeover to the single currency which was endorsed by the European Council and has now become the official changeover scenario on the basis of which preparations will be made by all parties concerned. More detailed information on some of the aforementioned topics will be provided in this edition by other authors. At this stage, only three more general remarks on the preparatory work of the EMI should be made.
First, the organisation of preparatory work. Given the complexity of the tasks, the EMI has organised its preparatory work on the basis of a comprehensive Master Plan. This plan acts as a guiding instrument for organising, monitoring and assessing the activities conducted by the EMI staff and the EMI's Working Groups and Sub-Committees. The more preparatory work progresses, the more implementation work will be substituted for analytical work, given the long lead times involved.
Second, whereas the EMI is the central point in the preparation of Monetary Union, it is not the only party concerned. A great deal of preparatory work will have to be implemented by the national central banks, which, as mentioned above, will play an important role in the execution of the monetary policy operations of the ESCB. Preparatory work is also an inter-institutional exercise in the Community, with the Council of Ministers adopting the necessary legislation and the Member States adjusting their legislation accordingly to make it consistent with the provisions of the Treaty. An essential requirement to be fulfilled will be the independence of national central banks so that they can be integrated into the independent ESCB.
Finally, all economic agents will be involved in the changeover
to the single currency, and the public sector and the banking
and financial industry will assume special responsibilities in
The EMI is a body of the European Union with its own legal personality. It performs its tasks independently; it may not seek or take any instructions from Community institutions or bodies or governments of the Member States. This feature already foreshadows the independence of the future ECB. At the same time, the EMI is a central bank organisation. Article 1 stipulates specifically that the members of the EMI are the central banks of the Member States. This specific feature of the EMI is mirrored in the composition of the EMI's decision-making body, the EMI Council, which comprises the Governors of the national central banks as well as the President of the EMI. The latter is not a central bank governor. He was appointed by common accord by the Heads of State or Government. The President's tasks comprise preparing and chairing EMI Council meetings, ensuring the day-to-day management of the EMI and presenting the views of the EMI externally.
The EMI Council's work is supported by the EMI's staff on the one hand, and the Committee structure on the other.
The EMI's staff
The staff works under the authority of the President. Its terms and conditions of employment are laid down by the EMI Council. Given the transitory nature of the EMI, members of the staff have generally been appointed on three-year fixed-term contracts.
As of May 1996, the number of staff was 198. All members of staff originate from the fifteen Member States.
The senior management currently includes the Director General and four Heads of Department. The four Departments are:
The General Secretariat consists of the Policy Division and the Legal Division. The Policy Division is responsible for: (a) preparing the Council meetings, maintaining inter-institutional relations, supporting the production and distribution of the EMI's reports and maintaining the EMI's archives; (b) overseeing the ECU Clearing and Settlement System, monitoring Member States' payment systems and preparing for the EU-wide payment systems in Stage Three; (c) supporting the activities of the Monitoring and Concertation Groups, monitoring the functioning of the EMS, facilitating the use of the ECU and overseeing its development, carrying out EMS-related operations and preparing the foreign exchange market operations to be carried out by the ESCB in Stage Three; (d) conducting background analyses for the consultations on issues affecting the stability of financial institutions and markets; and (e) co-ordinating the preparatory work for Stage Three, monitoring, evaluating and reporting on progress made against the timetable of the Treaty.
The Legal Division is responsible for handling all legal issues within the EMI. These include assisting in the fulfilment of the EMI's mandate, in particular as regards the legal aspects of the preparation of the regulatory and institutional framework of the ESCB and questions related to the interpretation of the Treaty. In addition, the Legal Division assists in the preparation of EMI opinions when consulted by the EU Council or national authorities on draft Community or national legislation falling within its field of competence.
The Monetary, Economic and Statistics Department is the economic brains trust of the EMI. It consists of three divisions. The Stage Two Division provides economic analyses of issues related to the strengthening of monetary co-operation among central banks and the co-ordination of monetary policies with a view to promoting price stability during Stage Two. It may also assist the Council in formulating opinions and recommendations on macroeconomic policies, including those relating to the convergence criteria, and provide analyses of issues regarding financial markets. The Stage Three Division is responsible for providing analyses on the concepts, framework and rules for the single monetary policy in Stage Three of EMU, in particular as regards the definition of the instruments, procedures and intermediate objectives of monetary policy. It contributes to the analysis of the practical implementation of foreign exchange policy in Stage Three.
The Statistics Division has the principal duties of contributing to the improvement of the statistical information which is needed for promoting the co-ordination of monetary policies in Stage Two and preparing the harmonised concepts and approaches and specifying the regulatory, organisational and logistical framework for the statistics which will be needed for the ESCB to perform its tasks.
The Information and Communications Systems Department is responsible, in particular, for devising and implementing a technical strategy for the information and communications systems for the EMI and the future ESCB. Furthermore, the ICS Department is responsible for providing technical support for the users of the EMI's information and communications in the EMI itself and for the monitoring, co-ordination and further development of the communications systems already in place between the EMI and the central banks.
The Administration Department is responsible for: (a) recruitment and personnel policy; (b) premises, procurement and office services; (c) the organisation of conferences, meetings and travel; and (d) the EMI's internal financial accounts, management accounting and general organisational issues.
The Committee structure
The other limb of the EMI consists of its committee structure, which allows a permanent exchange of views and information between the EMI and the national central banks at a working level, the co-ordination of activities and the common analysis of issues and the elaboration of solutions before they are submitted to the EMI Council for final consideration and endorsement. The Committee structure of the EMI includes the Committee of Alternates, which is chaired by the Director General and contributes to the preparation of the EMI Council meetings. The nine Sub-Committees and Working Groups are chaired by senior national central bank representatives and deal with monetary policy matters, foreign exchange policy, banking supervision, payment systems, statistics, accounting issues of the future ESCB, the integration of information systems, the preparation of euro banknotes and, finally, the legal work which has to be performed for the realisation of Monetary Union.
As mentioned earlier, the EMI is a transitional body, the existence of which mirrors the transition to the final stage of EMU. It will be dispensable when it has completed its mission. However, although the EMI will cease to exist soon after the establishment of its successor - the ECB - its achievements will survive as they will form the framework within which the ESCB will conduct its single monetary policy in Stage Three of EMU.