On January 1, the euro celebrated its sixth birthday. Today, we look back on a period in which the European Central Bank has successfully pursued a stability-oriented single monetary policy serving more than 300 million citizens.
This is a remarkable achievement. When the Maastricht Treaty was ratified in 1993, many people doubted whether Economic and Monetary Union would work. The Treaty’s objective was widely thought to be laudable – but realizable only in the indefinite future. To the surprise of many, Europe demonstrated great determination to ensure that the single currency became a reality.
A single monetary policy for a currency area comprising 11 – and later 12 – countries, each with a sovereign national government, was something entirely new. Would it be compatible with autonomous national fiscal policies? Given the decentralized nature of the system, would national interests distort the conduct of monetary policy?
I see several reasons underlying the ECB’s success in implementing a supranational monetary policy – and thus in firmly establishing the euro’s stability. First, the ECB’s mandate – enshrined in the Maastricht Treaty – is to deliver and maintain price stability. Focusing on the goal of maintaining a low and stable rate of inflation is the best contribution that monetary policy can make to economic welfare, sustainable growth, and job creation.