It establishes a clear hierarchy of objectives for the single monetary policy, with price stability unambiguously assigned overriding importance. How should this mandate be achieved? The experience of the 1970s and 1980s demonstrated the advantages of central bank independence in the pursuit of price stability. A monetary policy subject to short-term political concerns and influences could not adopt the medium-term orientation required to maintain stable prices credibly. Academic studies of the time consistency problem in monetary policy offered an insight into this issue, while empirical evaluations showing a correlation between central bank independence and greater price stability provided compelling supporting evidence. By the early 1990s, the benefits of central bank independence had become conventional wisdom. An increasing number of central banks achieved greater institutional independence. This worldwide trend was reflected in the Maastricht Treaty, which made the ECB one of the most independent central banks in the world. Assigning responsibility for an important public policy to an independent institution needs to be accompanied by a transparent and accountable policy framework. In a democratic society, a high degree of transparency and accountability in monetary policymaking should bolster both the legitimacy of the central bank and public support for its price stability mandate. At the same time, transparency and accountability impose an external discipline on policymakers which can add to the credibility, and thereby the effectiveness, of monetary policy. The ECB has set high standards in both regards by establishing channels for communication and accountability suited to the specific, and distinctive, institutional and cultural setting in Europe.

The two-pillar strategy chosen by the Eurosystem where these pillars represent distinct, yet complementary, approaches - captures this complexity in an honest and genuinely transparent manner. This naturally brings me to transparency - a topic of considerable and ongoing debate in the euro area. In my view, the transparency of the monetary policy process is best understood as the extent to which the external, presentational role of the strategy is consistent with the internal, decision-making procedure. As a party to both the decision-making and the presentation of the single monetary policy, I can assure you that the correspondence between the internal and external aspects of the Eurosystem’s strategy is extremely close. Discussions in the Governing Council take into account, on the one hand, an analysis of monetary developments and their implications for monetary policy and, on the other, an assessment of other financial and economic indicators, including macroeconomic projections based on conventional forecasting models and expert judgement. Comparisons are drawn and links are made between these two forms of analysis. Decisions are based on the information revealed through this exercise. The two-pillar framework that is used to explain policy decisions to the public therefore mimics rather precisely the internal decision procedure. Honesty is thus at the heart of the Eurosystem’s approach to communication. An inevitable consequence of our honesty in the face of a complex, uncertain and changing environment is that the ECB’s strategy cannot be simple, in the sense that it cannot be described using a single indicator or forecast.