The European Central Bank has exactly six months to prepare for the introduction of the single currency now that it has been launched at an inaugural ceremony in Frankfurt yesterday. Despite the positive state of political and economic preparations, there is still a lot to do on the technical and statistical side. And the broad policy parameters are also subject to further development, as it is more and more recognised that the euro's role will be determined by global influences, not least among them the impact of the Asian crisis on the world economy.
Yesterday's speeches by Dr Kohl, Mr Blair and Mr Duisenberg emphasised that effectively the euro is already established. It is a remarkable achievement to have reached this point, as may be better appreciated if one looks back at continuing scepticism about whether this would be possible one year ago. As Dr Kohl put it yesterday, the euro has already established sufficient credibility as a possible alternative to the dollar as a world currency. In addition, he pointed out, it is one of the most important answers to the globalisation of economic relations, giving its participants a real opportunity to re-establish influence over such forces at a European level. Mr Blair was not alone in arguing that substantial structural reforms will be required if the single currency is to operate efficiently. And Mr Duisenberg insisted that the low inflation must be maintained if the euro is to win the confidence of citizens. A more immediate problem is to establish adequate statistical tools with which to monitor these targets accurately. Their inadequacy and incommensurability as between the main EMU member-states were the subject of much critical comment at the European Council in Cardiff. As a result the ECB has not yet decided between the two principal policy instruments, inflation and monetary targeting. Partly for this reason, and partly for policy considerations, it will probably use a combination of both.
Ireland was honoured yesterday by the selection of Riverdance to perform at the inaugural ceremony. Coming after last month's disclosure that Ireland has not landed any of the most senior management positions at the ECB, this may help to encourage Irish people to identify more with the bank. But this State will exert its influence through its seat and unweighted single vote on the ECB executive and through its participation on the Ecofin and Euro-11 ministerial councils which will shape the political context in which the bank operates.
While it would have been preferable to have Irish officials higher up the bank's pecking order (a factor not ignored in the European Commission) it must be remembered that this is a supranational bank with equivalent mandates, which will have to establish policy according to judgments about overall EU economic interests. There remains much to be decided about the balance between larger and smaller states in the euro system; but Mr Duisenberg has made it clear in an interview that interest rates will fall to a level that best suits the largest states, such as Germany and France, and that it will be up to smaller ones such as Ireland and the Netherlands to adjust with other policy instruments.