Willem F Duisenberg: The European Central Bank, the Eurosystem and the
European System of Central Banks
Speech delivered by Dr Willem F Duisenberg, President of the European Central Bank, at the
ceremony to inaugurate the new building of the Banque centrale du Luxembourg, Luxembourg, 18
May 2001.
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Your Royal Highness, Prime Minister, Governor Mersch, distinguished guests,
Allow me first to congratulate you on the inauguration of the new premises of the Banque centrale du
Luxembourg. You decided to name parts of them - very appropriately, I find - after Pierre Werner, the
author of the first blueprint for Economic and Monetary Union in Europe. His report of 1970 laid the
conceptual foundations for many aspects of the institutional set-up and policy framework of today's
European Central Bank (ECB) and European System of Central Banks (ESCB). Most significantly,
Werner presented a lucid account of a fundamental requirement of monetary unification in Europe: no
single currency without a common central bank, or rather a "Community system of central banks", as
he called it. The distinctly federal character of what Werner saw as the future European monetary
authority was in itself a reflection of the fact that Europe is not a single nation, but a group of nations.
Twenty years later, the Treaty on European Union established the European System of Central Banks,
with the European Central Bank at its core, and transferred to it the task of conducting a single
monetary policy. In addition, the authors of the Treaty recognised that a functioning monetary union
requires centralised decision-making and harmonised governance over all those tasks which are
closely related to monetary policy. Consequently, responsibility for the management of foreign
exchange reserves, for activities to support the oversight of payment systems, for the collection of
euro area-wide statistics, for measures to ensure financial stability and for the issuance of banknotes
has also been assigned to the ESCB. At this point, I should like to clarify that, for as long as there are
EU Member States outside the euro area, all these tasks are being carried out by what we call the
Eurosystem, rather than by the ESCB as a whole. The Eurosystem comprises the ECB and the
national central banks (NCBs) of the euro area Member States. The Eurosystem's clearly defined
policy responsibilities, together with its independence, the strict orientation of monetary policy to
stability and the federal institutional model could be regarded as the cornerstones of the "monetary
constitution" of the Community.
The Banque centrale du Luxembourg, is - in this sense - a "child" of the success of monetary
integration in Europe. Moreover, given today's festive occasion, one could even regard these new
premises of the Banque centrale du Luxembourg as a tangible - or shall I say, concrete - expression
of the federal character of the Eurosystem. In accordance with the Treaty, the NCBs are integral parts
of the Eurosystem. Consequently, the tasks conferred upon the Eurosystem are to be carried out in a
collective manner. In line with the principle of subsidiarity, which - in itself - embodies recognition of
the fact that responsibilities should be distributed among the central institution and federated units on
the basis of functional requirements, the NCBs play an indispensable role in the conduct of the tasks
and functions of the Eurosystem.
In the run-up to Stage Three of Economic and Monetary Union, many observers felt that the
decentralised monetary policy framework would become too complex and inefficient. However, these
concerns have not been borne out by experience, not least because highly developed information
technologies make decentralisation entirely feasible. Making use of the NCBs' considerable
experience in dealing with their national counterparties has been, and continues to be, a real benefit to
the whole system.
Ladies and Gentlemen, it would, however, be an incomplete account of the role of the NCBs in the
Eurosystem to focus exclusively on implementation, or "downstream", activities. The NCBs also make
a crucial contribution to decision-making further "upstream". The federal character of the Eurosystem
is most clearly reflected in the composition of the ECB's decision-making bodies. As members of the
Governing Council, the NCB Governors participate - in a personal capacity - in deciding on all
centralised policy functions. In addition, the various ESCB Committees provide a tight network of
professional, as well as human, connections between NCBs and the ECB. In the work of these
Committees, expert knowledge and specific national experience are brought together, so as to provide
input into the deliberations of the Eurosystem decision-making bodies.
Last, but by no means least, the NCBs play an indispensable role in communications. Undoubtedly,
the multinational, multi-lingual set-up of the Eurosystem presents a challenge, to say the least. In this
context, the NCBs' assistance in conveying the ECB's policy messages in their national languages and
their intimate knowledge of the respective national cultural context and communication conventions
represent invaluable assets, especially in these early years of the euro. By explaining the reasoning
behind the ECB's policy actions in the national political arena, the NCBs make an essential
contribution to informing the public debate in their Member States. The upcoming physical introduction
of euro banknotes and coins will pose a further communication challenge, since the task of ensuring a
smooth changeover will, to a considerable degree, also rest on the shoulders of our colleagues from
the NCBs.
Ladies and Gentlemen, before I conclude, allow me briefly to address some of the institutional
challenges which the Eurosystem will be facing in the future. First, there is the process of constantly
reviewing practices and procedures within the Eurosystem. In this context, I am referring to our joint
efforts to fine-tune the existing framework in the light of the experiences of the first two years, so as to
increase efficiency and respond to market developments. The reality of the single currency has
stimulated changes in market structures which have altered the outlook for and practices of market
participants and regulators. It is thus appropriate for the Eurosystem also periodically to review its own
procedures which, after all, were designed before the euro came into existence.
In such a dynamic and changing environment, closer co-operation within the Eurosystem can also be
beneficial in those policy fields that are not directly linked to core monetary policy tasks, but which
have traditionally been a realm of central bank activity. Speaking with one voice and presenting a
common view - as, for example, in our recent joint statement on "The role of central banks in
prudential supervision" - can help to strengthen the influence of our policy messages and to amplify
their public and political impact. Naturally, any such joint, and mutually beneficial, efforts are without
prejudice to the distribution of responsibilities between the ECB and the NCBs.
A great challenge for European institutions in general, and for the Eurosystem in particular, will be the
forthcoming enlargement of the EU to take in 12 or more countries from central, eastern and southern
Europe. In purely institutional terms, the accession of new Member States entails an immediate
enlargement of the ESCB, though not of the Eurosystem. However, since enlargement will be a
gradual and seemingly open-ended process, it is obvious that the "Eurosystem" as an additional
construct to clarify the relationships between the "ins" and the "outs" within the ESCB is here to stay
for the foreseeable future. Even so, it is also clear that the introduction of the euro is the final
destination for accession countries. In fact, there is even a certain - I believe, understandable
- impatience on the part of future new Member States to adopt the euro as soon as possible.
However, the Treaty lays down clear criteria for entry into the euro area, and requires their fulfilment in
a sustainable manner.
The eventual entry of new Member States into the euro area will also require an adaptation of the
institutional framework of the ESCB. Examples of central banks from around the world, such as in
United States or in Germany, show that it is possible to design appropriate structures which allow
effective decision-making in federal, decentralised systems and to reconcile efficiency demands with
considerations of adequate representation. Therefore, I am confident that we will be able to find a
solution that guarantees the efficient conduct of a stability-oriented monetary policy also in an
enlarged Eurosystem.
Ladies and gentlemen, thank you very much for your attention.