Governing EMU Economic, Political, Legal and Historical Perspectives
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Governing EMU Economic, Political, Legal and Historical Perspectives Francisco Torres Amy Verdun, Chiara Zilioli and Hubert Zimmermann (eds)* European University Institute European Central Bank European Investment Bank July 2004 * Francisco Torres, Amy Verdun and Hubert Zimmermann were the editors of these proceedings while Chiara Zilioli was one of the four initial conference organisers. 1 2 CONTENTS Preface page 7 Chapter 1: Introduction Francisco Torres, Amy Verdun and Hubert Zimmermann ”9 Democracy and Governance in the Euro area Chapter 2: Politicizing EMU: the ‘Legitimacy gap’and the Populist Challenge to the EU Oliver Schmidtke ”19 Chapter 3: EMU and EU Governance Francisco Torres ”35 Chapter 4: Common Currency and National Constitutions Anneli Albi ”63 Papers discussion Stefano Bartolini ”81 Svetlozar Andreev ”85 Alessandra Chirico ”89 General discussion Philippe Schmitter ”99 Michael Artis ” 111 The ECB between Growth and Stability Chapter 5: Governing EMU: the European Central Bank between Growth and Stability Simona Talani ” 117 Chapter 6: The Dog that Would Never Bite? What We Can Learn from the Origins of the Stability and Growth Pact Martin Heipertz and Amy Verdun ” 137 Chapter 7: The “Brussels Consensus” on Macroeconomic Stabilization Policies: A Critical Assessment Roberto Tamborini ” 153 Chapter 8: Stability and Growth: the Role of Monetary Policy and Other Policy Actors in EMU Bernhard Winkler ” 177 Chapter 9: The New Economy and Economic Policy in the Euro Zone Dario Togati ” 195 3 Papers discussion Martin Rhodes ” 215 Elisabetta Croci Angelini ” 219 Annette Bongardt ” 227 The Euro as a World Currency and as a European Anchor Chapter 10: Ever Challenging the Buck? The Euro and the Question of Power in International Monetary Governance Hubert Zimmermann ” 233 Chapter 11: The Dollar/Euro Exchange Rate and EMU Economic Institutions Pompeo Della Posta ” 249 Chapter 12: Ceart go leor – Ireland, the UK, the Sterling Area and EMU Maurice FitzGerald ” 273 Chapter 13: Exchange Rate Regimes in the Western Balkans and their Evolution towards EMU Renzo Daviddi and Milica Uvalic ” 291 Discussion David Andrews ” 311 General discussion Jürgen Kröger ” 317 The Role of Standards and Legal Tender in EMU Chapter 14: The Role of Standards in Governing Financial Markets’ Stability Maria Chiara Malaguti ” 327 Chapter 15: Copyright Protection of the Euro and the Hungarian National Legal Tender Péter Munkácsi ” 345 Conference keynote address Chapter 16: Challenges for Monetary Policy in Euroland Paul De Grauwe ” 363 References ” 389 A note about the editors ” 425 List of contributors ” 426 4 List of figures and tables Figure 1 Euro-area GDP % changes 1998-1999 ” 120 Figure 2: GDP growth and unemployment in the euro-area 1998-1999 ” 120 Figure 3: HICP in euro-area (% c“hanges) 1998-1999 ” 121 Figure 4: Real GDP % changes 1999-2001 ” 123 Figure 5: Output gaps in Italy, Germany, France-1999-2002* ” 123 Figure 6: Adjusted M3 percentage changes per month in relation to the 4.5% target – 1999 ” 125 Figure 7: M3, HICP and ECB main refinancing rate % changes 1999- 2002 ” 125 Figure 8: USD/Euro exchange rates 1999-2003 ” 126 Figure 9: ECB official reserves compared to the performance of the real effective exchange rate of the euro ” 127 Figure 10: Composition of exports of goods in Germany-1999 ” 129 Figure 11: Composition of exports of goods in France-1999 ” 129 Figure 12: Composition of exports of goods in Italy-1999 ” 130 Figure 13: Italian manufactured goods trade with US-1999-2003, Kg ” 132 Figure 14: Export performance in selected OECD countries ” 132 Figure 15: Initial preferences and subsequente convergence ” 147 Figure 16: The dollar/euro exchange rate ” 252 Figure 17: Real GDP growth (percentage change from previous period) ” 262 Figure 18: US and Euro area current account ($ billions) ” 263 Figure 19: US and Euro area direct investment ($ billions, net flows) ” 263 Figure 20: Euro area - US 3-month interest rates ” 264 Figure 21: Crude oil spot price (dollars per barrel) and $/g exchange rate ” 265 Figure 22: Net issuance of international debt securities by currency (percentage) ” 266 Figure 23: Currency in circulation in the Euro area and $/g exchange rate ” 267 Figure 24: Flexible inflation targeting and demand shocks ” 365 Figure 25: Flexible inflation targeting when supply is non-linear ” 366 Figure 26: Different inflation-targets central banks ” 367 Figure 27: Costs and benefits of inflation ” 370 Figure 28: Benefits of Inflation: Lubricant and credibility ” 370 Figure 29: NNC-ECB view ” 371 Figure 30: Inflation rate in the euro area ” 373 Figure 31: Inflation and money growth in a sample of more than one hundred countries ” 375 Figure 32: Inflation and money growth in “low” inflation countries ” 375 Figure 33: Degrees of divergence and of economic integration - the optimistic scenario ” 377 5 Figure 34: Degrees of divergence and of economic integration – the pessimistic scenario ” 379 Figure 35: Distribution of desired interest rates in the eurozone (symmetric case) ” 381 Figure 36: Distribution of desired interest rates and country size (Taylor rule, 2002) ” 382 Figure 37: Distribution of desired interest rates and country size in the euro-27 (symmetric case) ” 383 Figure 38: Distribution of desired interest rates in the euro-27 (Taylor rule, 2002) ” 384 Table 1: International trade in goods balance with the US (Millions ECU/ EUR and % of GDP) ” 131 Table 2: The Dublin government’s view of the issues necessitating negotiation ” 281 Table 3: Ireland’s negotiations timetable, June 1970 to January 1972 ” 282 Table 4: Exchange rate regimes in the Western Balkans ” 292 6 PREFACE These proceedings collect many of the contributions to the first European University Institute (EUI) Alumni conference held in Florence at the Badia Fiesolana on 3/4 October 2003. This volume is also the result of the first collaborative academic work of EUI alumni as such, and represents the four disciplines taught at the Institute: economics, political science, law and history. Since launching the idea of organising an interdisciplinary conference on Economic and Monetary Union (EMU), we have counted on the continuous support and help from the Alumni Association and its Executive Committee, especially from Annette Bongardt and Carlo Spagnolo and, since last year, also from Milica Uvalic and Amy Verdun. It was quite an ambitious task to organise such a conference on the occasion of the traditional alumni weekend in Florence. The conference programme was carefully designed and adapted over almost one year. There was a conference organiser for each discipline: Amy Verdun (political science), Chiara Zilioli (law), Hubert Zimmermann (history) and myself (economics). To look for fellow alumni who might be interested in contributing to the subject as well as for discussants and chairpersons for the conference was a demanding job but a rather gratifying one. Many alumni came and participated in the conference without presenting and/or discussing a particular paper. Many others could not make it in October 2003 although they had very interesting contributions on the topic. Others were not prepared to contribute to this particular topic but were very keen on participating in future alumni conferences. Some others managed to come and deliver quite interesting presentations but did not find the time to write and/or revise (edit) their papers. We are grateful to all of them, especially to all those – listed as contributors – who came to the conference to present or discuss a paper, and successively undertook revisions of their contributions in the following months. The organisation of the conference was possible thanks to grants to the European University Institute from the European Central Bank and the European Investment Bank. We are grateful to both institutions and to alumni Chiara Zilioli and Eric Perée, working at the ECB and the EIB respectively, for having suggested such a possibility. We also very much thank Paul De Grauwe who accepted to deliver the keynote address to our conference and EUI faculty, namely Helen Wallace, 7 Colin Crouch, Bruno De Witte, Rick van der Ploeg, Arfon Rees and Mike Artis, who acted as chair persons, and Stefano Bartolini, also an alumnus, Neil Walker, Martin Rhodes, Giancarlo Corsetti, David Andrews and Philippe Schmitter, who agreed to be paper and panel discussants, as well as Jürgen Kröger from the European Commission, for participating in the conference and in the panel. For some of these people, this meant making a significant effort to be present and to participate in the conference activities. Throughout the entire project we benefited from the institutional support of the European University Institute and in particular of its president, Yves Mény, who opened the conference and actively supported this project with much personal commitment and many excellent suggestions. We also received invaluable help and advice from the EUI Administration, namely from Andreas Frijdal, Brigitte Schwab, Kathinka España, Roberto Nocentini, Bobbie Rawle, Alex Howarth and, last but not least, from Valérie Coppini, who helped us carry out the entire project with tireless dedication and enthusiasm. We would also like to acknowledge the help of Jakub Kubicki in transforming many papers with different styles into a single word document and of Signor Pandolfi, in Florence, who patiently made the necessary changes to the manuscript via long telephone calls and took it to press. Amy Verdun and Hubert Zimmermann were exceptional co-editors. Thanks to them and their remarkable skills and experience as editors and to all contributors – that make for the contents of this volume – it was possible to publish these proceedings and to envisage pursuing this interdisciplinary project in the near future. Francisco Torres 8 CHAPTER 1 INTRODUCTION BY FRANCISCO TORRES, AMY VERDUN AND HUBERT ZIMMERMANN The Enlarged European Union (EU) is facing challenging times. The EU is simultaneously expanding its geographical scope and revisiting existing policies. It has taken on board eight new Central and Eastern European Countries (CEECs) and two small Mediterranean countries.