Participation in the monetary union also entailed a change in the relationship between Treasury and central bank so as to incorporate the prohibition of monetary financing of government deficits. Central bank independence was granted with a large degree of legal protection and, as a matter of fact, no country in the European Union can change it at its own discretion. Of course, the independence of the central bank does not mean arbitrariness, as it is well counterbalanced by high transparency and accountability requirements and practices. Granting independence to the Banco de España some years before the introduction of the euro as a common currency reflected Spain’s strong ambition to become a founding member of the European Economic and Monetary Union. It was also the result of a firm political conviction as to the benefits of price stability and the advisability of delegating the pursuit of this goal to an independent central bank. Price stability requires a medium-term orientation and the independence of the monetary authority creates credibility by helping to keep inflation expectations anchored while avoiding time inconsistency problems.1 These reasons were particularly compelling for the Spanish economy in light of the previous experience of relatively high inflation. 1  The main argument to preserve central bank independence is that it avoids the so-called time inconsistency problem. When the monetary authority is not independent, it may consider other, shorter-term legitimate objectives, and may use monetary policy to repeatedly boost aggregate demand above what would be consistent with its inflation objective.

Preserving central bank independence thus requires acknowledging this interaction among policies and, hence, it is the duty of central bankers to call for an appropriate mix of economic policies that help us achieve our price stability goal while minimising potential side effects. The specificity of the euro area, with a common monetary policy and 19 different fiscal and economic policies, considerably increases the complexity of finding the right alignment of economic policies. The aggregation of national fiscal policies does not necessarily translate into an adequate fiscal stance for the euro area as a whole. In short, the current euro area institutional architecture does not allow for a systematic implementation of an active fiscal policy based on targeted, timely and temporary measures. Thus, the absence of a common fiscal capacity in the euro area makes it difficult to achieve an appropriate policy mix. Building this fiscal capacity, with adequate size and design, should be a priority on the agenda. The Eurosystem should continue to push for more growth-enhancing reforms at the national and European levels and for the completion of a more robust euro area institutional setting. This includes completing the Banking Union, the Capital Markets Union and creating a stabilising central fiscal capacity that will help the euro zone economy reduce its vulnerabilities and better weather potential future episodes of stress. This brings me to highlight one further dimension of the value of central bank independence. Independence contributes to the role that monetary authorities tend to play with respect to other policies.