EMU depends on strong political links
Diane Coyle discovers the challenges facing the man preparing Europe for a single currency; THE MONDAY INTERVIEW; Alexandre Lamfalussy
Monday 13 January 1997
What is more remarkable is his new willingness to link the success of monetary union to political integration, with a frankness unusual in central banking circles. In an exclusive interview with The Independent, Mr Lamfalussy highlighted the need for wide policy co-ordination as the biggest potential hurdle in the way of the successful operation of European monetary union.
He said: "We need closer economic and political co-operation. I don't want to say political union because its content is vague... but there will be areas in which we have to get closer. That will be forced by monetary union and that is the greatest challenge."
It is a view likely to confirm the worst fears of Britain's Europhobes. It also reconciles French demands for a "stability council" which would give finance ministers a strong voice in economic policy and German determination that the new European Central Bank will be as independent and tough as the Bundesbank.
There would need to be explicit co-ordination of fiscal policies, on top of the harmonisation of taxes that was already under way within the single market, Mr Lamfalussy said. Speaking from the European Monetary Institute's eyrie high above the snow-bound streets of Frankfurt, he said: "This is a unique enterprise. All of this is experimental."
Mr Lamfalussy's other, equally strong, message for Europe's politicians is that they are wrong to blame high unemployment and stagnant growth on the need to meet the Maastricht criteria. Soaring government debt levels meant the unpopular measures governments on the Continent were taking to reduce government deficits would have been essential anyway, he argued.
On the use of Maastricht as the culprit, Mr Lamfalussy said: "It is a mistake from a tactical point of view because it discredits EMU in the eyes of the public."
He concedes that the single currency has prodded governments into action: "Maastricht was welcome because it puts you against a deadline."
But he regrets the negative associations the M-word has come to have in the public mind. "This is unfair and regrettable," he said.
For all his alertness to the political forces driving progress towards the single currency, Mr Lamfalussy insisted that the European Central Bank he was busy bringing into being would be independent of politicians' influence. But the personality of its first executives would be crucial, he said.
"There is a high probability that the ECB will be able to resist very successfully any political pressure. That there will be political pressure is clear."
He added: "There is no doubt the choice of people will matter a lot."
Apart from the defence provided by its statutes, which guarantee independence, Mr Lamfalussy said the ECB's strongest card was the existence of a culture of price stability in Europe.
"The policy of combating inflation is already there. We have achieved price stability in a growing number of countries. It has already happened," he said.
For the same reason, he denied suggestions that the ECB would have to start out being extremely tough in its interest rate decisions in order to establish its credibility. The credibility already exists, in his opinion. "Why, when you come together, should you suddenly start to behave in a different way?" Mr Lamfalussy did not, however, accept the view widespread in Frankfurt that monetary union would necessarily exclude the Mediterranean countries to begin with - a diplomatic stance, perhaps. Although the presence of Italy and Spain at the start would raise doubts in the financial markets about credibility, Mr Lamfalussy said: "We do have a reasonable chance that quite a number of countries will meet the budget commitment."
He denied, too, that this could only be achieved by letting standards slip. "To say now that we will have to fudge is going a little bit too fast. By the summer we will begin to see the likely outcome," he said.
Like many others on the Continent, he hopes for a clearer view of Britain's position by then too.
"I would be delighted if the UK joined," he said. "Monetary union would be poorer without Britain."
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