The Pivotal Role of the ECB in the New Europe

With the successful launch of EMU at the beginning of January 1999, the key question is how well the new grouping of 11 countries – Euroland – will perform macroeconomically. Strains and difficulties between countries appear solvable if the context is a healthy growing Europe, but are more dangerous if the group as a whole performs badly. In this article Christopher Allsopp and David Vines argue that the European Central Bank has a pivotal role. This is not just for the obvious reason, enshrined in the Treaty, that the independent Bank is charged with ensuring price stability. Beyond that, the ECB will necessarily be the main co-ordinating institution for macroeconomic policy. The single monetary authority interacts, for good or ill, with eleven national governments, eleven fiscal authorities and eleven national labour markets. The game is rigged in an unfamiliar way.