A Service of Leibniz-Informationszentrum econstor Wirtschaft Leibniz Information Centre Make Your Publications Visible. zbw for Economics Eijffinger, Sylvester C. W. Article — Published Version Treaty reform: Consequences for monetary policy Intereconomics Suggested Citation: Eijffinger, Sylvester C. W. (2007) : Treaty reform: Consequences for monetary policy, Intereconomics, ISSN 0020-5346, Springer, Heidelberg, Vol. 42, Iss. 6, pp. 311-316, http://dx.doi.org/10.1007/s10272-007-0232-9 This Version is available at: http://hdl.handle.net/10419/41986 Standard-Nutzungsbedingungen: Terms of use: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Documents in EconStor may be saved and copied for your Zwecken und zum Privatgebrauch gespeichert und kopiert werden. personal and scholarly purposes. 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Eijffi nger* Treaty Reform: Consequences for Monetary Policy The proposed reform treaty, aimed at enhancing the effi ciency and democratic legitimacy of the enlarged Union as well as its position on the global stage, has a number of important implications for monetary policy and the status of the European Central Bank. Can the reforms be expected to make euro area governance more effi cient? Could they potentially jeopardise the ECB’s independence and European monetary policy? he purpose of this article is to discuss the issue of discuss the “new” Treaty and to seek political support TTreaty reform and its consequences for monetary for all the amendments to the original treaties. The ma- policy. Inter alia, the changes include that the institu- jor changes proposed include the removal of the three- tional set-up will be subtly changed and the European pillar structure of the EU, more democracy, changes Central Bank (ECB) will be grouped in the fi rst part of to the institutional setup of the Union, improvement the Treaty as one of the “other institutions and adviso- of the solidarity and security within the Union and ry bodies”. Possibly more importantly, the euro area as enhancement of the position of the EU on the global such will be in the position to act legally as itself within stage.2 The three-pillar structure3 will be abolished to the European Union (EU) legal structures. The Euro- simplify the structure of the EU. The structure will be group also will be offi cially recognised (“Euro-Ecofi n- reorganised, with more emphasis on foreign and se- Council”). The rules for enhanced cooperation have curity policy and justice and home affairs. More de- also been further relaxed from the Treaty of Nice, also mocracy will be realised by giving national parliaments applying to the area of economic governance (e.g. eu- and the European Parliament (EP) a bigger say, while ro area coordination, tax policy, exchange rates). What the power of the European Commission will decrease. should we think of these reforms? Will they make euro The EP will be on an equal footing with the Council of area governance more effi cient and/or could they po- Ministers in many areas in terms of decision-making. tentially jeopardise the ECB’s independence and Euro- A withdrawal option will be included, in order to state pean monetary policy? that member states are part of the EU by their own choosing. Moreover, there will be some opt-out op- The Reform of the Treaty tions in the area of police and criminal law, as urged In essence, the content of the new proposed reform by the United Kingdom and the Czech Republic. The treaty is very similar to that of the Treaty establishing change in the institutional set-up of the ECB will be a Constitution for Europe.1 It has just been modifi ed most important for the working of monetary policy and and rephrased, as many heads of the different EU the status of the ECB. The latter effects will be singled governments have already confi rmed. In July 2007, an out later in the text and treated in more detail. Further- Intergovernmental Conference (IGC) has been held to more, decision-making will take place more swiftly and more commonly be supported by the system of quali- * Professor of European Financial Economics and Jean Monnet fi ed majority voting, which will be introduced in more Professor of European Financial and Monetary Integration, CentER, Tilburg University, The Netherlands; Professor of European Financial 1 Integration, RSM Erasmus University, Rotterdam, The Netherlands; OpenEurope.org.uk/research/guide.pdf. Research Fellow, CEPR, London; Member of the Panel of Experts of 2 European Commission: Reforming Europe for the 21st Century, the Committee on Economic and Monetary Affairs of the European Communication from the Commission to the Council, COM (2007) 412 Parliament, to which the article was fi rst presented as a Briefi ng Paper fi nal, Brussels, 10 July 2007. for the Monetary Dialogue with the President of the European Central Bank in October 2007. The author gratefully acknowledges the helpful 3 The European Communities pillar, the Common Foreign and Secu- comments of Edin Mujagic and the excellent research assistance of rity Policy pillar and the Police and Judical Cooperation in Criminal Rob Nijskens. Matters pillar. Intereconomics, November/December 2007 311 EUROPEAN CENTRAL BANK than forty new areas. This is also going to apply to and Growth Pact in recent years) may undermine the economic governance. These measures include the supranational character of policy decision-making relinquishing of veto power in many areas (including and increase the tensions within the eurozone be- the ECB’s powers over fi nancial regulation), the ap- tween the larger and smaller countries. pointment of a permanent President of the European Article 114 of the new Treaty (which was Article Council, and a reinforcement of the Commission’s au- III-194 of the original Constitution) will make the Eu- thority. Also, it is easier to amend the treaty in the new rogroup – the informal meetings of fi nance ministers form, by means of co-decision and qualifi ed majority from eurozone countries – into a formal body with its voting, so that a new IGC will not be necessary. This own President, elected for two and a half years. This also includes amending the articles concerning the President may represent the eurozone in international ECB and its independence, as we shall see below. fi nancial organisations like the International Monetary Consequences for European Monetary Policy and Fund (IMF). The Eurogroup also gains the right to the ECB4 send recommendations to eurozone countries that Article 107 (formerly III-187 of the Constitution) are in breach of EU rules, and the power to decide states that a number of Articles in the Statute of the (by majority voting) whether a non-eurozone country European System of Central Banks can, for the fi rst is ready to enter the euro area. time, be amended by qualifi ed majority voting, on a Representation in International Financial proposal from the Commission: “Articles 5.1, 5.2, 5.3, Institutions 17, 18, 19.1, 22, 23, 24, 26, 32.2, 32.3, 32.4, 32.6, 33.1(a) and 36 of the Statute of the ESCB may be Article 115a (ex-111(4)) (137)(III-196) amended by the European Parliament and the Coun- 1. In order to secure the euro‘s place in the inter- cil, acting in accordance with the ordinary legislative national monetary system, the Council, on a pro- procedure.” posal from the Commission, shall adopt a decision These articles include signifi cant ECB powers such establishing common positions on matters of par- as: the power to set minimum reserve requirements ticular interest for economic and monetary union for banks and the power to fi ne fi nancial institutions; within the competent international fi nancial institu- the power to conduct foreign exchange operations tions and conferences. The Council shall act after and make international agreements for currency co- consulting the European Central Bank. ordination; the power to set up and regulate clearing 2. The Council, on a proposal from the Commission, systems; and arrangements for sharing the profi ts of may adopt appropriate measures to ensure unifi ed the ECB. The ultimate consequence of these chang- representation within the international fi nancial in- es may imply that the ECB’s interest-rate policy could stitutions and conferences. The Council shall act be neutralised by other EU institutions, like the EP after consulting the European Central Bank. and the Ecofi n council. The Ecofi n council could e.g. push the ECB to use (sterilised) exchange rate inter- 3. For the measures referred to in paragraphs 1 and ventions, thus infl uencing more frequently the ECB’s 2, only members of the Council representing Mem- monetary policy. ber States whose currency is the euro shall take part in the vote. This would give the EP and the Ecofi n council more power and could affect the ECB’s independence and These powers were already defi ned in the old Trea- monetary policy. It has to be noted that these amend- ty, although this new article is wider in scope.