The ministers in the individual countries finally adopt the programmes, which then form the basis for the next discussion of the general economic policy guidelines, which are adopted each summer by the heads of state or of government. In between, each country is analysed by the Commission, which is required to give early warning if countries do not fulfil undertakings they have made in their national programmes. The idea behind this structure is the principle of subsidiarity, that is, matters to be decided jointly by the member states are to be limited to those for which a decision at this level is absolutely necessary; everything else is a national concern. The ECB is to guarantee price stability. Monetary policy has to be formed in the light of fiscal policy’s expected development. Similarly, inflation has to be assessed in the light of the existing trade policies and the prevailing structures in labour markets, agriculture and so on. There is no question of coordinating policy in the sense of the ECB undertaking to act in a certain way if policy in other fields is adjusted or realigned — what euro jargon refers to as ex ante coordination. This naturally accentuates the need for clarity in monetary policy. It is reasonable that politicians in Europe are enabled to assess what an adjustment of fiscal policy, for example, would have for consequences for the interest rate.
Mr Heikensten speaks on the euro and European economic policy Speech by Mr Lars Heikensten, First Deputy Governor of the Sveriges Riksbank, the Swedish central bank, at Merita-Nordbanken in Malmö, Sweden on 16 June 1999. The single European currency, introduced at the beginning of this year, marks a major change for the economic policies of countries in the euro area. The clearest example is, of course, the transition to a single monetary policy. The proper functioning of the monetary union in the long term presupposes that the new European Central Bank succeeds in making its policy and the euro understood and credible. Important factors in this context are how the new central bank chooses to work, how monetary policy is continuously formed and how it is communicated to the general public and to markets. However, a well-constructed monetary policy and a central bank that acts wisely are not sufficient to ensure that the union functions in the longer run. If growth and employment in the euro area are to be as high as possible without jeopardising price stability, all the components of national economic policies will have to pull together. The fiscal, structural and labour market policies of the individual countries influence both the conditions under which the new central bank is operating and, to the highest degree, Europe’s future prosperity. A framework exists for this joint effort.