But of course don’t expect a central banker to answer this question, one year in advance. I will just mention the Banque de France view on the rationale that should be behind the determination of the starting level of the euro area short-term rates. As you know, we currently observe interest rate differentials between the “core” and more “peripheral” currencies participating in the exchange rate mechanism. Although these spreads have been dramatically reduced in the past two years, due to the remarkable convergence of inflation rates throughout the European Union, some interest rate differentials still exist. They can be attributed partly to differing positions in the business cycle, and partly to differences in credibility. Cyclical differences within the potential euro area should not be overestimated. There is, all in all, a relatively high degree of synchronisation in the business cycle in continental Europe. The convergence criteria laid down in the Maastricht Treaty certainly played an important role in fostering this synchronisation. Moreover, in the future, differences in cyclical developments will gradually be reduced as policies, structures and behaviour will become more and more similar. Lastly, some persisting differences may well be tolerated as is currently the case between the various regions of the same country or, for instance, between the various member states of the USA. Credibility differences between “core” and “peripheral” currencies result from the different lengths of the track records in terms of stability-oriented policies.
These guidelines will include prior approval by the ECB for transactions exceeding thresholds to be specified and will also apply to member states’ transactions with their foreign exchange working balances. The ESCB will have the technical capacity to conduct, if need be, foreign exchange intervention in order to counteract excessive or erratic exchange rate fluctuations of the euro against the major non-EU currencies (e.g., the US dollar). The need for intervention could also arise either in the context of G7 concerted operations or within the framework of the ERM II. To this end, the ESCB will use the pool of foreign assets transferred from the NCBs to the ECB. The framework that has been designed for domestic as well as foreign exchange operations allows the ESCB to build on the expertise that NCBs have acquired over the years and to make an extensive use of existing operational capacities in NCBs (dealing room, front office, back office). Common sense dictates making use of equipment, human resources and expertise currently available at NCBs. 2.4. A decentralised execution of operations A key feature of the single monetary policy is indeed that it will be decided in a centralised manner, by the Governing Council of the ECB, and executed in a decentralised manner, by the national central banks.