The European systems of central banks: quo vadis?

Houston Journal of International Law, Wntr, 1999 by Patrick Deller

I. INTRODUCTION

After years of unsuccessful attempts to achieve monetary integration within the area of the European Union (Elf),(1) the Economic and Monetary Union (EMU), as set forth under the newly designed Treaty Establishing the European Community (EC Treaty),(2) entered the third and final stage of monetary integration on January 1, 1999.(3) There were two possible ways for the EU to enter the third stage of monetary integration. The first possible entrance procedure required that "a majority of the Member States fulfil the necessary conditions for the; adoption of a single currency."(4) Unlike the first procedure, the second alternative does not call for a certain number of EU countries to comply with the crucial criteria, such as legal and economic requirements.(5) Under either procedure the national legislation of the member states, including the statutes of the national central banks (NCBs), must be in compliance with Articles 107 and 108 of the EC Treaty and the European System of Central Banks (ESCB) Statute.(6) The ESCB Statute is a protocol to the EC Treaty.(7) With respect to he economic requirements, the member states must provide a high degree of sustainable convergence, which applies to the following:(8) (1) stable prices and low inflation;(9) (2) public finances (comprised of public deficit and public debt);(10) (3) exchange rates;(11) (4) long-term interest rates;(12) and (5) other factors, (13) The uniqueness of this "road on which there is no turning back"(14) is demonstrated by the fact that never in history have democratic states transferred theft monetary policy sovereignty and abandoned theft currencies in favor of a centralized, "supranational institution"(15) such as the ESCB.(16) The ESCB consists of a two-tier scheme as a commitment to its federal structure.(17) The ESCB will be comprised of the NCBs of the participating countries with the European Central Bank (ECB) as its "decision-making center."(18) These tiers are integrated to handle the new currency called the "euro."(19) Like its forerunner the European Monetary Institute (EMI), the ECB(20) is located in the financial center of Germany, Frankfurt, where the German Central Bank (Deutsche Bundesbank) is also centered.(21)

Rumors concerning the possible first wave of EMU participants never seemed to end,(22) since according to the EMI's Convergence Report 1996(23) the majority of the member states did not meet the necessary conditions for the adoption of the single currency.(24) The rumors were primarily due to the poor fiscal situation and the budgetary deficits of the member states.(25) The mystery about the "ins" and "outs" was ultimately revealed on March 25, 1998 when the EU Commission and the EMI simultaneously published their respective convergence reports as required under Article 109j(1) of the EC Treaty.(26) The Commission recommended the countries that were eligible for EU admission to the European Council.(27) For 11 member states the dream of the expected paradise has come true--Germany, France, Italy, Spain, Netherlands, Belgium, Austria, Finland, Portugal, Ireland, and Luxembourg.(28) By contrast, Sweden failed to fulfill two(29) and Greece failed four(30) of the above-mentioned criteria. In accordance with their particular status,(31) Denmark(32) and the United Kingdom(33) have already notified the Council that they will voluntarily not participate in the third stage of the EMU. However, even with all the enthusiasm and the major improvements that have been made throughout the EU within the last two years, it can not be overlooked that the debt-to-GDP ratio is still among the Community's biggest worries.(34) It is by no means surprising that the EMI, regarding the top stars in this area, Belgium (122.2%)(35) and Italy (121.6%),(36) has unambiguously expressed its doubts "whether the ratio of government debt to GDP will be `sufficiently diminishing and approaching the reference value at a satisfactory pace.'"(37) The language used by Professor Hans Tietmeyer, President of the Deutsche Bundesbank,(38) was more direct when presenting the Statement of the Central Bank Council on the state of convergence in the EU before the German Federal Cabinet.(39) Tietmeyer noted that the continuously expressed commitment to construe and apply the convergence criteria strictly and narrowly(40) is deemed all the more important since economic and fiscal policy will remain a national responsibility. He also raised "substantial doubts" and "serious concern" about the sustainability of the governmental fiscal situation in Belgium and Italy.(41) Tietmeyer calculated that Belgium and Italy would have to achieve a surplus of at least 2.3% and 2.2% respectively to fulfill the reference value of 60% debt ratio within ten years.(42) This ratio is very unlikely to be achieved in the near future since further deficits are expected in these states.(43) Thus, the Deutsche Bundesbank consented with reservations to the Commission's evaluation,(44) while the Federal Government expressed its concern more modestly by only insisting on the achievement and maintenance of the criteria.(45)