They have reduced their budget deficits, pushed down their inflation rates to less than 2%, and brought their growth rates close to 3%. Favourable global economic conditions made it possible to create an environment suitable for the proper functioning of the system. Meanwhile, the European Monetary Institute completed the necessary preparations for launching the ECB, and transferred its responsibilities to that Bank at the beginning of July 1998. At its founding, there was a broad consensus that the ECB should be independent. There were continuing discussions about its main target, however, and even though this question seems to be resolved, sometimes it still appears on the agenda. The main point being discussed is that while price stability is specifically mentioned in the constitutional agreement as an objective of the ECB, the role of the growth and economic stability objectives is less clear. It is generally agreed that the primary task of central banks should be price stability, but some still argue that the price stability objective should not conflict but should cooperate with the growth and stability objectives. Others insist that since the existence of price stability brings about high employment and sustainable growth in the medium and long term, there is no conflict between the growth and price stability objectives. I believe that the ECB’s present policies, based on all these discussions, aim at price stability as its primary task, with sustainable growth and low unemployment as major objectives.
Other questions follow. Will the mechanisms of monetary policy transmission still work efficiently? Can monetary policy moves made as they are in Germany today, using monetary aggregates as intermediate targets, succeed in the euro area as well? Which monetary aggregates will be used? What of the money demand function? Will there be a real and reliable database obtained by collecting and harmonising data from within the euro area? Targeting inflation and conducting monetary policy in light of the target has been the normal procedure for many countries. Nonetheless BIS Review 1/1999  –3–  there are lingering suspicions in some quarters about the credibility and reliability of this system, and since there is a good chance that a loss of credibility will follow a failure to meet an inflation target, the ECB will not announce such a target. I should also mention that some member countries’ central banks have reservations about conducting monetary policy with inflation targeting. People who accept monetary aggregates as good intermediate targets say that in accordance with the principles of continuity and flexibility, which are the basis for central bank credibility, it is more realistic to target monetary indicators and use these targets to attain price stability. For myself, I believe that central banks can control these monetary indicators and are responsible for them. If a central bank is assigned a task, it must have control over its instruments and operations and enjoy independence in the conduct of monetary policy to perform efficiently.