The Bundesbank and the formation of the ECB's monetary policy strategy

Abstract

The ECB is almost a complete copy of the Bundesbank's organization, having adopted the Bundesbank's definition of price stability and its monetary targeting strategy. But rather than following simply from coercive power attached to the relative size of the German economy and EU budget contribution, the decision to emulate the German monetary policy model was the result of the persuasive power of the Bundesbank, the domestic success of the German model, and the hope held by European central bankers and many European politicians that success could be replicated on the European level. The primary interests of European central bankers were to appear competent and to maintain their independence; their search for the monetary policy ideas that provided the best chance of achieving these goals led to the German model.

Notes

1. See European Central Bank, The Monetary Policy of the ECB (Frankfurt: ECB, 2001).

2. It is important to note that one of the main reasons the American Federal Reserve dropped monetary targeting was because it became next to impossible to accurately measure the size of the money supply in the US.

3. See European Central Bank, The Monetary Policy of the ECB.

4. Peter Katzenstein, Policy and Politics in West Germany (Philadelphia: Temple University Press, 1987).

5. Kenneth Dyson and Kevin Featherstone, The Road to Maastricht: Negotiating Economic and Monetary Union (Oxford: Oxford University Press, 1999); Dorothee Heisenberg, The Mark of the Bundesbank (Boulder: Lynne Rienner Press, 1999); Karl Kaltenthaler, Germany and the Politics of Europe's Money (Durham: Duke University Press, 1998); Andrew Moravcsik, The Choice for Europe (Ithaca: Cornell University Press, 1999).

6. Judith Goldstein, Ideas, Interests, and American Trade Policy (Ithaca: Cornell University Press, 1993); Judith Goldstein and Robert Keohane (eds.), Ideas and Foreign Policy: Beliefs, Institutions, and Political Change (Ithaca: Cornell University Press, 1993).

7. Peter Hall (ed.), The Political Power of Economic Ideas: Keynesianism Across Nations (Princeton: Princeton University Press, 1989); Kathryn Sikkink, Ideas and Institutions: Developmentalism in Brazil and Argentina (Ithaca: Cornell University Press, 1991).

8. Kathleen McNamara, The Currency of Ideas: Monetary Politics in the European Union (Ithaca: Cornell University Press, 1998).

9. Kenneth Shepsle, ‘Institutional Arrangements and Equilibrium in Multidimensional Voting Models’, American Journal of Political Science 23 (1979), pp.27–59.

10. Kenneth Dyson, The Politics of the Euro-Zone: Stability or Breakdown? (Oxford: Oxford University Press, 2000); Dyson and Featherstone, The Road to Maastricht; Kenneth Dyson, Kevin Featherstone and George Michalopolos, ‘Strapped to the Mast: EC Central Bankers between Global Financial Markets and the Maastricht Treaty’, Journal of European Public Policy 2/3 (September 1995); McNamara, The Currency of Ideas; Amy Verdun, ‘The Role of the Delors Committee in Creating EMU: An Epistemic Community?’ Journal of European Public Policy 4/2 (1999), pp.308–28.

11. Peter Haas, ‘Introduction: Epistemic Communities and International Policy Coordination’,International Organization 46 (1992), p.3.

12. Haas, ‘Introduction’; Ethan Kapstein, ‘Between Power and Purpose: Central Bankers and the Politics of Regulatory Convergence’, International Organization 46 (1992), pp.265–87.

13. Verdun, ‘The Role of the Delors Committee in Creating EMU’, p.317.

14. McNamara, The Currency of Ideas.

15. These goals are not in any particular order. The order of importance of these things may differ across central bankers and across time for individual central bankers.

16. Arthur Lupia, The Democratic Dilemma: Can Citizens Learn What They Need to Know? (Cambridge: Cambridge University Press, 1998).

17. Interview with national central bank governor.

18. David Andrews, ‘Building Capacity: The Institutional Foundations of EMU’ (Undated manuscript, European University, Florence, 2003), p.963.

19. Interview with national central bank governor.

20. David Howarth and Peter Loedel, The European Central Bank: The New European Leviathan? (London: Palgrave, 2003), pp.29–30.

21. Heisenberg, The Mark of the Bundesbank; Kaltenthaler, Germany and the Politics of Europe's Money; Peter Loedel, Deutsche Mark Politics (Boulder: Lynne Rienner Press, 1999).

22. Dyson, The Politics of the Euro-Zone; James Walsh, European Monetary Integration and Domestic Politics (Boulder: Lynne Rienner Press, 2000).

23. Kaltenthaler, Germany and the Politics of Europe's Money; Loedel, Deutsche Mark Politics.

24. Interview with ECB Executive Board member.

25. There was less consensus in the Monetary Committee than in the Committee of Governors because the Monetary Committee included finance ministers who were much closer to the political side of things and therefore had slightly different set of interests than the central bank technocrats.

26. McNamara, The Currency of Ideas; Verdun, ‘The Role of the Delors Committee in Creating EMU’.

27. Interview with national central bank official.

28. Andrews, ‘Building Capacity’, p.964.

29. Dyson and Featherstone, The Road to Maastricht; Heisenberg, The Mark of the Bundesbank; Moravcsik, The Choice for Europe.

30. Interview with national central bank governor.

31. Interview with member of the ECB Executive Board.

32. Ibid.

33. Ibid.

34. Matt Marshall, The Bank: The Birth of Europe's Central Bank and the Rebirth of Europe's Power (London: Random House Business Books, 1999), p.278.

35. Ibid., p.279.