Central Banks in the Age of the Euro This Page Intentionally Left Blank Central Banks in the Age of the Euro

Central Banks in the Age of the Euro This page intentionally left blank Central Banks in the Age of the Euro Europeanization, Convergence, and Power Edited by Kenneth Dyson and Martin Marcussen 1 3 Great Clarendon Street, Oxford ox2 6dp Oxford University Press is a department of the University of Oxford. It furthers the University’s objective of excellence in research, scholarship, and education by publishing worldwide in Oxford New York Auckland Cape Town Dar es Salaam Hong Kong Karachi Kuala Lumpur Madrid Melbourne Mexico City Nairobi New Delhi Shanghai Taipei Toronto With offices in Argentina Austria Brazil Chile Czech Republic France Greece Guatemala Hungary Italy Japan Poland Portugal Singapore South Korea Switzerland Thailand Turkey Ukraine Vietnam Oxford is a registered trade mark of Oxford University Press in the UK and in certain other countries Published in the United States by Oxford University Press Inc., New York # The several contributors 2009 The moral rights of the authors have been asserted Database right Oxford University Press (maker) First published 2009 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, without the prior permission in writing of Oxford University Press, or as expressly permitted by law, or under terms agreed with the appropriate reprographics rights organization. Enquiries concerning reproduction outside the scope of the above should be sent to the Rights Department, Oxford University Press, at the address above You must not circulate this book in any other binding or cover and you must impose the same condition on any acquirer British Library Cataloguing in Publication Data Data available Library of Congress Cataloging in Publication Data Data available Library of Congress Control Number: 2009924588 Typeset by SPI Publisher Services, Pondicherry, India Printed in Great Britain on acid-free paper by the MPG Books Group ISBN 978–0–19–921823–3 13579108642 Acknowledgements and Preface By general consent European monetary union represents an historic event for European unification and for European Union (EU) member states. Manifestly, it is also historic in central banking: A new ‘stateless’ central bank managing a single currency, the euro, for (by 2009) sixteen EU member states, which voluntarily delegated their sovereignty over monetary policy. This book examines the effects of this new ‘age of the euro’ on European central banks: Euro Area ‘insiders’, temporary ‘outsiders’, and semi-permanent ‘outsiders’. These effects are matters of great topical and academic interest. They provide insights into the complex relations between Europeanization, power, and convergence in European central banking and into how international, European, and domestic factors shape these relations into different configur- ations. The book is a companion to The Euro At 10 (OUP) in addressing the same questions but with a narrower focus. Central banking provides an opportunity to explore a paradox. On the one hand, it has been subjected to major Euro- pean-level institution building with the creation of the ‘Eurosystem’, which brings together the European Central Bank (ECB) and its national central banks (NCBs). Europeanization processes have in consequence, been unusually powerful. On the other hand, central banking is deeply and exceptionally embedded in an internationalized professional community, in globalized financial markets, and in academic macroeconomic debates. These three character- istics shape its contemporary professional character: cosmopolitan, market- oriented, and technocratic. Consequently, the independent impact of Euro- pean monetary union (EMU) on central banking is limited. Europeanization reinforces central banking policy beliefs and practices that have their roots in wider processes of international diffusion. As will also become clear, the limi- tations of Europeanization also stem from the significance of domestic political contexts and historical legacies, most evidently in ‘semi-permanent’ outsiders like Britain and Sweden. Nevertheless, Europeanization has never before been so potent a force in European central banking; this process has accompanied the empowerment of central banks in macroeconomic discourse and manage- ment; whilst convergence pressures in central banking have strengthened. This book maps these three interconnected phenomena. v Acknowledgements and Preface The book’s distinctive character derives from the focus, questions, and ap- proaches typical of political science in addressing comparative political economy. It deals with Europeanization, power, and convergence in institutions and policy processes. It focuses on ideas, institutions, discourse, and strategies in central banking; asks questions about how they mediate the effects of the euro on states (Europeanization) and about what they tell us about power and convergence. At the same time a key theme is the limits of Europeanization as a concept for capturing processes of change in central banking and differences in reform trajectories. The book benefited from two major opportunities to bring together contributors in research workshops. The EU-CONSENT Network of Excellence sup- ported a first workshop in Cardiff University in May 2007. Special thanks are due to the British Academy for co-funding a second research workshop in November 2007 with the EU-CONSENT Network. These workshops provided invaluable opportunities for authors to present drafts of their chapters for discussion. In particular, Angela Pusey at the British Academy displayed great courtesy, patience, and efficiency in ensuring the smooth running of the British Academy workshop. In addition, the final revision of chapters benefited greatly from the com- ments of all contributors, who served as discussants on each other’s papers at the two workshops. Particular debts of gratitude are owed to Professor Charles Goodhart (LSE) and to Professor Ivo Maes (Catholic University of Louvain) for their trenchant advice. Dominic Byatt and his team at Oxford University Press have offered unfailing encouragement and support at every stage. Through their commitment, will- ingness to work as a team, and patience with our efforts at guidance, the contributors have made our task pleasant and rewarding in personal as well as in academic terms. The combination of OUP’s professionalism with the dedi- cation of contributors lightened the editorial load. Nevertheless, as ever, any shortcomings in the final product remain the responsibility of the editors. Finally, a few words are needed about the immediate context of the book. It was written as the dramatic events associated with the financial crisis of 2007–8 began to unfold. The US sub-prime mortgage crisis and the crisis in the inter- bank money markets had occurred. However, the US rescues of the mortgage financing giants Fannie Mae and Freddie Mac and the insurance giant AIG, the bankruptcy of Lehman Brothers, and the spread of bank solvency crises to the EU and Euro Area lay ahead. By September 2008, the three Benelux governments were rescuing Fortis bank; the German government and Bundesbank were bailing out Hypo Real Estate; a number of German states were rescuing their state banks; whilst EU governments were offering guarantees for bank deposits in an ad hoc, initially uncoordinated manner. Central banks were drawn into liquidity support operations and into bank rescue operations on a massive scale, rediscovering their role as banker to the banks; huge public stakes vi Acknowledgements and Preface were taken in banking systems, not least in the United States and Britain, the homes of archetypal ‘Anglo-American free market capitalism’; the regulation and supervision of financial markets became a high-profile political issue; whilst monetary policy stood uneasily poised between the challenge of infla- tion and threats from the financial crisis to the real economy of output and jobs. The economic and political world of central banking was in transform- ation: A favourable tailwind for monetary policy had been replaced by strong, volatile headwinds. Clearly, this book does not have the benefits of being able to look back on this crisis and assess its historical scale and long-term effects on central banking, an exercise that will be possible in a few years time, though some points are fairly safe to establish even at this early stage. We can only take note of events up to spring 2008. This problem is not, however, central to the book. The first chapter recognizes that since 1999 the age of the euro has been embedded in a political economy of (in historical terms) good times. This era is closing. Central banks, financial markets, politicians, and officials will be mak- ing history in a very different context of hard times. Just how different that context will be, and what effects their actions will have, we do not yet fully know. Kenneth Dyson Cardiff University, Wales Martin Marcussen Copenhagen University, Denmark June 2008 vii This page intentionally left blank Contents List of Figures xi List of Tables xiii Abbreviations xv Notes on Contributors xix 1. The Age of the Euro: A Structural Break? Europeanization, Convergence, and Power in Central Banking 1 Kenneth Dyson Part I The Changing Context of Central Banking 2. Differentiation in the European System of Central Banks: Circles, Core, and Directoire 53 Gaby Umbach and Wolfgang Wessels 3. The European Central Bank: The Bank That Rules Europe? 73 David Howarth Part II Eurosystem ‘Insider’

Load more