ernst welteke : the effect of the euro on the german economy – a view from the deutsche bundesbank speech by mr ernst welteke, president of the deutsche bundesbank, to the german - british chamber of industry and commerce in london on 29 may 2001. * * * ladies and gentleman, it is a pleasure for me to speak to such a distinguished audience today here in london. you may wish to hear about the effects of the euro on the german economy, and i very much appreciate the opportunity to present my views on this. economic relations between the not - yet - euro zone country united kingdom and the already - euro zone country germany are strong. thus, you may be glad to hear that, judging from today ’ s perspective, the euro project is a success ( story ) for germany on the whole. there is, however, no denying some work - in - progress aspects to the european monetary union itself and to germany ’ s role therein. i shall try to provide you with a balanced picture of germany in the year three of the euro era. melting eleven local currencies into a single currency is a once - in - a - century project. thanks to extensive preparations by the european central bank, its predecessor organisation the european monetary institute and eleven national central banks, there were no major technical glitches. thus, technically the changeover was a non - event for the general public. the smooth transition then gave way to a successful start of a true european monetary policy. in the ecb governing council, we cherish what we call the “ spirit of the governing council ”. this is to say, my colleagues and i feel and decide as europeans. we do not regard ourselves as national delegates. rather, we unequivocally pursue the interests of the euro area as a whole. i don ’ t mind admitting that we are proud of this spirit. what makes us all the more proud is that monetary policy is up to now the only area in european politics where european interests clearly predominate over national interests. the european central bank is unique in many respects. the ecb is independent, and has its independence guaranteed in the eu treaty. the treaty also stipulated the maintenance of price stability as the primary goal of monetary policy. the european system of central banks defines price stability as a change in the harmonised index of consumer prices of less than 2 %. in 1999, with an inflation rate of 1. 1 %, that objective was met

structured in a manner than is compatible with stability. not surprisingly, it is precisely in those countries which face acute financing problems and a severe loss of confidence in their own fiscal policies that the cries for joint liability are the loudest and the most emphatic. the support we are seeing from the european institutions, which, by their very nature, advocate greater centralisation at the european level, is just as understandable. it is, however, worth noting that the advocates of joint liability are often in those countries which are the most opposed to surrendering their national sovereignty with regard to financial policy decisions. it is clear that joint liability holds the promise delivering benefits and extending a country ’ s scope for action, whereas fiscal union could restrict the scope for action at the national level. as understandable as such a stance may be, a stable union cannot be founded on this basis. my impression is that germany is much more open with regard to the issue of surrendering national sovereignty than many partner countries. in order to establish a stability - oriented fiscal union, it is my firm belief that it is imperative for the euro - area countries to summon up two things first, the willingness to submit themselves in a binding manner to strict budgetary rules. second, the willingness to hand over sovereignty in some areas to a central level that effectively monitors compliance with the rules and, above all, can enforce them. consequently, although not necessary, it would be acceptable to bear risks to a certain extent jointly. in this context, the sequence in which the steps are taken is crucial. if we were to reverse the order, there would be a risk – if not, in fact, a strong probability – of the second step never being taken or, at least, not being taken properly. but how might a stability - oriented fiscal union be structured? there are, of course, a large number of options for this, all depending on how far competencies are shifted to the european level, revenue and spending powers are centralised and transfer elements are extended. i wish to assume the status quo ; in other words, as much subsidiarity as possible in the form of national fiscal responsibility and the fiscal objectives, as set out, for example, in bis central bankers ’ speeches the stability and growth pact and in the fiscal compact. and it is on this basis that i would like to outline a number of minimum requirements for a stability - oriented fiscal union. this minimal approach has the advantage that it allows a broader range of