14/09/2004 13:02
Relations between the European Central Bank and eurozone governments backed by the EU's executive commission are heading for turbulence owing to proposals for easing the stability pact and the appointment of a euro supremo.
A decision Friday to name a chairman of the Eurogroup of finance ministers for a two-year term presents a challenge to the ECB and could sow seeds for a possible conflict over respective roles, analysts said.
The official reason for the nomination was to establish a political figurehead for the 12-nation eurozone, while the ECB remained in charge of monetary policy.
But it raised questions regarding foreign exchange policy, such as who would speak in the future on questions concerning the single European currency.
ECB chief Jean-Claude Trichet quickly drew a line in the sand, saying Saturday: "As far as the currency is concerned, I am evidently 'Mr Euro'."
Trichet's stance mirrored that of his predecessor, Wim Duisenberg, who coined the expression in 2000 and steadfastly defended the bank's point of view.
But the Maastricht treaty is vague on the issue, giving the ECB and its member central banks a mandate to conduct foreign exchange operations such a monetary interventions.
At the same time, however, the treaty says governments may propose general orientations of foreign exchange policy.
"In case of conflict, the question of knowing who makes the decisions is not resolved," stressed Rainer Guntermann, an economist at the Dresdner Kleinwort Wassertein bank.
"The ECB is very worried about institutional changes because it always fears ministers could encroach on its territory," he added.
Designating Luxembourg Prime Minister Jean-Claude Juncker as the Eurogroup's first permanent chairman appeared to be a compromise since he respects the ECB's independance and should avoid conflicts with the Frankfurt-based bank.
"Mr. Juncker is a good choice but if the post if given in the future to a political leader with a different temperament, conflicts could appear," Guntermann warned.
Such conflicts already exist regarding budget policy, and augur poorly for a good European policy mix coordinating fiscal and monetary actions.
Though reforming the Stability and Growth Pact that underpins the euro would be a long process given differences of opinion among EU countries, heavyweights such as Britain, France, Germany and Italy more or less already back such a move.
But easing conditions for countries confronted with sluggish economic growth and giving governments more time to put their economic affairs in order was termed "unwelcome" by Trichet last weekend.
Other eurozone central bank officials were apparently charged with getting a stronger message across.
ECB chief economist Otmar Issing said Monday that the pact's current status is intolerable since the agreement lacks the teeth to be taken seriously.
"Without the existence of a credible threat of sanctions, the pact is losing its bite," Issing told the German daily Die Welt. "As a result the current situation is intolerable."
On Saturday, the Dutch central bank warned that easing terms of the stability pact could push up interest rates.
A decision Friday to name a chairman of the Eurogroup of finance ministers for a two-year term presents a challenge to the ECB and could sow seeds for a possible conflict over respective roles, analysts said.
The official reason for the nomination was to establish a political figurehead for the 12-nation eurozone, while the ECB remained in charge of monetary policy.
But it raised questions regarding foreign exchange policy, such as who would speak in the future on questions concerning the single European currency.
ECB chief Jean-Claude Trichet quickly drew a line in the sand, saying Saturday: "As far as the currency is concerned, I am evidently 'Mr Euro'."
Trichet's stance mirrored that of his predecessor, Wim Duisenberg, who coined the expression in 2000 and steadfastly defended the bank's point of view.
But the Maastricht treaty is vague on the issue, giving the ECB and its member central banks a mandate to conduct foreign exchange operations such a monetary interventions.
At the same time, however, the treaty says governments may propose general orientations of foreign exchange policy.
"In case of conflict, the question of knowing who makes the decisions is not resolved," stressed Rainer Guntermann, an economist at the Dresdner Kleinwort Wassertein bank.
"The ECB is very worried about institutional changes because it always fears ministers could encroach on its territory," he added.
Designating Luxembourg Prime Minister Jean-Claude Juncker as the Eurogroup's first permanent chairman appeared to be a compromise since he respects the ECB's independance and should avoid conflicts with the Frankfurt-based bank.
"Mr. Juncker is a good choice but if the post if given in the future to a political leader with a different temperament, conflicts could appear," Guntermann warned.
Such conflicts already exist regarding budget policy, and augur poorly for a good European policy mix coordinating fiscal and monetary actions.
Though reforming the Stability and Growth Pact that underpins the euro would be a long process given differences of opinion among EU countries, heavyweights such as Britain, France, Germany and Italy more or less already back such a move.
But easing conditions for countries confronted with sluggish economic growth and giving governments more time to put their economic affairs in order was termed "unwelcome" by Trichet last weekend.
Other eurozone central bank officials were apparently charged with getting a stronger message across.
ECB chief economist Otmar Issing said Monday that the pact's current status is intolerable since the agreement lacks the teeth to be taken seriously.
"Without the existence of a credible threat of sanctions, the pact is losing its bite," Issing told the German daily Die Welt. "As a result the current situation is intolerable."
On Saturday, the Dutch central bank warned that easing terms of the stability pact could push up interest rates.
Related Articles
