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This chapter examines the conflict between the European Central Bank (ECB) and Council of Ministers and the Economic and Finance Ministers of the eleven countries taking part in the common currency (ECOFIN-11). The theoretical game of chicken is used to highlight the preferences of the two parties and ensuing dynamics. It is shown that the ECB’s commitment to its institutional objective counters political authorities’ attempts to gain fiscal dominance over monetary policy.

This chapter describes the history of the implementation technology for the Eurosystem's monetary policy. The monetary policy operational framework was developed by the European Monetary Institute and then by the European Central Bank. The development of the framework included the specification of the ECB's open market operations, the standing facilities, the reserve requirement system, the collateral policy, the counterparty policy, and the liquidity forecasting procedures. The work also comprised a discussion on the appropriate operational target for the Eurosystem's monetary policy as well as the development of the supporting IT systems and other infrastructure. The chapter gives insights into the debates and practical challenges involved in agreeing a framework on the basis of the different traditions and interests of the participating EU national central banks. The chapter gives a view into the complex elaboration of proposals and the decision-making processes in the European Monetary Institute and the European Central Bank. Moreover, the chapter gives a comprehensive overview of the design of the original Eurosystem framework at the time of the launch of the euro.

Starting from concerns at the lack of legitimacy and accountability of European monetary institutions, the author develops proposals for improving the accountability of the European Central Bank and embedding it in a democratic institutional context resembling that of individual member states.

This chapter discusses central bank independence and why it should be regarded as an application of the logic of discipline. The argument for central bank independence mutated substantially over thirty years. It began as a simple application of the logic of discipline: legal reforms were necessary to establish the independence of central banks so that they could make difficult decisions about monetary policy. Formal-legal reforms empowered a new guardian class of central bankers and scholarly economists. Over time the argument for independence was refined to include the claim that de jure independence would be an effective means of reassuring foreign investors about the commitment to price stability. By 2009, however, this now-conventional argument for central bank independence had been discredited in several ways. The most obvious difficulty was the failure of leading central bankers to anticipate and avoid the crisis of 2007-2009.

An analysis is presented of the creation and development of rules governing the organizational form and the policy content of the European Central Bank (ECB). The establishment of the ECB and the launching of the Euro constitute an extraordinary innovation, one that opens and organizes a new institutional space in Europe. The ECB system is assessed in the light of three broad theoretical approaches emphasizing, respectively, power politics, institutions as rational solutions to collective problems, and pre-existing normative (social) structures. Power politics and functional rationality approaches are found to fail to account for important aspects of the ECB’s rules and policy mandates, while, in contrast, a sociological emphasis on institutional context is useful in explaining the continuities linking the ECB to the normative structure that had previously developed – largely within the network of central-bank governors – and diffused throughout the organizational field in which monetary policy-making was embedded. It was the need to legitimize the new ECB in terms of these broader norms that shaped the ECB’s organizational structure and governing rules: in particular, pre-existing norms influenced three key aspects of the ECB – its political independence, its criteria for membership, and its rules for price stability.

Seeks to understand why some member‐states of the European Community attempted, with eventual success, to extend supranational authority in the domain of monetary and exchange‐rate policy and to anticipate some of the probable consequences of such extension. It begins by analysing the beliefs that originally underpinned the attempt, concerning the perceived need to resolve the community tensions inherent in independent economic policy‐making. It then considers the economic, political and institutional dilemmas, and uncertainties likely to confront member‐states as economic integration proceeds. Concentrating on the issues of low growth and high unemployment, it assesses how far European Monetary Union is likely to provide a remedy, and whether it will be necessary or desirable to create a counterweight to the authority of the European Central Bank, and to create new supranational organizations in the domain of European macroeconomic governance.

New social risks are at the forefront of the EU's social policy agenda. In part, this is because a new social risk approach fits with open market policies, which stress constraints on state interventions and the importance of adapting social provision to meet economic goals; in part because old social risk areas are so heavily occupied by existing national government policies that it is difficult to find support for innovations. During the 1980s and 1990s, a number of attempts to develop international policy harmonization were pursued. These failed due to the difficulty of achieving cross‐national consensus. There are a number of relevant directives, chiefly in the areas of equality of opportunity for men and women and other labour market issues. The most important current developments, however, are in the area of ‘soft law’ through the Open Method of Co‐ordination and the National Action Plans in relation to employment, social exclusion, pensions, health and social care. The European Employment Strategy, with its stress on ‘flexicurity’, is the most advanced of these. It is at present unclear to what extent this process will achieve substantial changes in comparison with the importance of the economic pressures from the Single European Market.

Monetary integration through the Maastricht Treaty in European Union was achieved by delegation to the Commission. This was fuelled by the need for centralised expertise to coordinate complex change and the member states' desire to commit themselves to future compliance with the stability and Growth Pact rules that were agreed upon to enforce budgetary discipline. The Commission built political support for the transition to a single currency. To ensure the credibility of member government commitments to the debt and budget deficit convergence criteria, the Excessive Deficit Procedure was devised and implemented by the Commission as was the Early Warning Procedure of the Ecofin finance ministers. The European Central Bank enforced the low inflation target.

The introduction clarifies the main purpose of the book: to give an analytical account of the technology for monetary policy implementation of the European Central Bank, comparing it, when useful, with the approaches of the US Federal Reserve System, the Bank of Japan, and the Bank of England. The book addresses this issue both theoretically and empirically, examining normal as well as stressed conditions. In so doing, it not only remedies a lack of attention to an important issue but it also presents a systematic treatment of the implementation of monetary policy in crisis times. The introduction also explains that the title of the book, with its reference to the concrete euro, aims at addressing the issue of how a given monetary policy stance is translated into concrete market conditions. The allusion to something as solid as concrete is also intentional. The closing section of the introduction presents the plan of the book.

The Fed's three major peers are the Bank of England (BOE), the European Central Bank, and the Bank of Japan (BOJ). This chapter begins with a description of the powers of the three peer central banks. It then compares their powers with those of the Fed. It argues that institutionally the United States grants by far the weakest lender-of-last-resort (LLR) powers to its central bank, particularly with respect to nonbanks: (1) its independence is more fragile; (2) it is the only country with special limitations on lending to nonbanks as compared with banks; (3) it is the only country, outside the Eurozone, that makes no provision for loans to institutions the central bank does not judge as solvent; (4) while the BOE and BOJ require Treasury approval or direction for emergency lending, such requirements are likely to be much less politicized than the US Treasury approval of loans to nonbanks; (5) it is the only country that places restrictions on banks using discount window loans to support affiliates; (6) it is the only country requiring that there be a broad program for borrowing by nonbanks; and (7) it is the most aggressive country in requiring disclosure, thereby possibly inhibiting borrowers from borrowing due to the associated stigma. All but the first point results from changes by Dodd–Frank. This US weakness is not likely to be rectified in the near future given the politics surrounding bailouts.

In economic relations, the EU has the capacity to exercise a global role on par with the United States. Yet the EU is not always able to effectively defend its interests. While the EU has firmly established its role as a global player in trade, it has faced difficulties in acquiring such a role in money and finance. Institutional legacies best explain this uneven progress. EU trade policy-making is centralized, whereas centralization is incomplete in the area of money and finance. Power struggles among the various EU bodies and member-states hamper effectiveness.

The Maastricht Treaty created the European System of Central Banks and the European Central Bank (ECB) to head the system. The treaty entrusts the ECB with the responsibility for monetary policy, but national authorities remain responsible for financial stability. In this chapter, we focus on the implications of national versus central assignment of lender-of-last-resort and supervisory functions for the degree of forbearance in closing distressed banks and for the level of diligence in bank supervision. One major conclusion is that, if only one of the two functions is centralized, then it will be more effective to centralize the supervisory function.

This chapter looks at the division of power and accountability structures in the European Banking Union, the principal emphasis being on political accountability. Other types of accountability are also examined where appropriate (e.g. budgetary, administrative, or legal accountability). The discussion begins with the division of competence between the national and EU authorities in the Banking Union. This is followed by examination of the role of the European and national parliaments, as well as the Council and Eurogroup, in holding the European Central Bank, the Single Resolution Board, and the national supervisory and resolution authorities to account for their actions in this area. The focus then shifts to the intra-institutional balance of power and the emerging patterns of geographical fragmentation. The penultimate section of the chapter focuses on access to information, which is crucial for all forms of accountability. The final section of this chapter offers a snapshot of some of the features of the Single Supervisory Mechanism (SSM) and the Single Resolution Mechanism (SRM) which may hamper the effectiveness of the Banking Union and place its output legitimacy in jeopardy. The chapter concludes with proposals on how to strengthen accountability and transparency in the Banking Union.

This chapter attempts to apply some of the theories described to the European context. The main argument is that most of the scenarios provided by a range of respected economists will generate pressures for the improvement of the economic role of the centre including fiscal centralization. In addition, economists' analyses of the functioning of the European Central Bank (ECB) and the Stability Pact, suggest that within the European Monetary Union (EMU) area the relationship between fiscal and monetary policy will become central to economic strategy. It specifically summarizes the policy implications of competing economic scenarios and places these implications in political context by evaluating the capacity of the European Union (EU) institutional structure and especially the European party system to accommodate them. Relevant survey data on levels of support for EU institutions is also explained. There is little evidence to suggest that, as a whole, the peoples of Europe have obtained a level of identity with European institutions that is in any way equivalent to their identification with existing nation states and regions.

This chapter opens up with a brief history of the challenges that people faced who forged the policies of the European Central Bank (ECB) in its first decade. The ECB faced challenges in retaining public support for its own policies and in promoting the structural reforms needed to increase the flexibility of member economies. The ECB itself has been an excellent source, reflecting its admirable penchant for self-assessment. This chapter discusses the initial conditions in 1998 and the challenges that participants expected as the monetary union was getting under way. The construction of the ECB's operational framework, including the creation of the euro area money market as well as the initial implementation of the policy and communication strategies, is analyzed. It then proceeds to an evaluation of ECB policy performance in the first decade of monetary union. Furthermore, this chapter shows that, as the euro area expands, the addition of new constituencies that speak different languages and have different customs and histories will complicate communication further.