This is reflected in the fact that the Danish Central Bank invariably alters its interest rates in the wake of announcements of changes in the European Central Bank (ECB) policy rate. Sweden and the UK have opted for inflation targeting as their monetary policy framework, which therefore does not have the objective of keeping these countries’ currencies stable against the Euro. European Central Bank The Maastricht Treaty stipulates monetary arrangements in the EMU. The EU countries created a framework for the ECB’s activities which was to some extent modelled on the Central Bank of Germany but differed in many ways from the arrangements in others. Various conditions were set which EU members had to fulfil in order to be granted EMU membership. On the one hand these related to major components of economic developments, such as inflation, fiscal deficit, government debt and interest rates. On the other hand they addressed the framework that the Maastricht Treaty lays down for monetary policy implementation in the EMU. This policy was consistent with growing support for the view that it was natural to set a simple target for central banks – i.e. promoting price stability – and to increase their independence from the political leadership in pursuing their main objectives, and to strengthen their financial independence. Another emphasis was that, at the same time as the central banks’ independence was strengthened, stricter demands would need to be made of them regarding transparency in their activities and actions, and regarding accountability towards the government and general public.
BIS Review 95/2001  1  All this was reflected in the Maastricht Treaty. The European Central Bank, which formally began operation in the middle of 1998, enjoys extensive independence and is subject to requirements for transparency and accountability. Even though Sweden is not yet a member of the EMU, it amended legislation on its own Central Bank which now largely fulfils the Maastricht terms. The Bank of England’s legislation does not entirely fulfil the terms of the treaty, but it was granted greatly increased independence a few years ago. Denmark has still not amended its central bank legislation, although this will need to be done in the event of Denmark joining the EMU, not least to give legal sanction to its independence. Price stability is the main objective The Maastricht Treaty set a single objective for the European Central Bank, namely ensuring price stability. Price stability was not defined in the treaty, however; this was done by the ECB itself, which specified it as an annual rise of under 2% in the Harmonised Consumer Price Index. A separate treaty on stability and economic growth stipulates that EMU members should aim for long-term fiscal balance or a surplus, and a public sector deficit of less than 3% of GDP. The decisive viewpoints behind the formulation of the European monetary framework were also dominant in many other parts of the world.