framework. in fact, they had a symbiotic relationship. inflation targeting requires a clear objective for monetary policy, and independence of decision making is therefore of the essence. inflation targeting works partly through anchoring inflation expectations, and for this, clear and credible communication is required. for credibility, there needs to be transparency of policy objectives and of decision making. independence also requires accountability. therefore, good governance structures relating to committee workings and decision making are also important. page 3 of 10 while decision making by committee is not a prerequisite for inflation targeting, there are good arguments for it. it is an irony, however, that in new zealand, the first country to adopt inflation targeting, the governor is the sole decision maker. he does take advice from a committee, but the decision is ultimately his. this is mainly because the policy targets agreement that the governor signs with the government makes him personally responsible for achieving the target. his job is on the line if the target is missed. there is a sizeable literature on the relative efficiency of committee - based decision making. the general conclusion appears to be that, subject to certain features being present, a committee structure outperforms individual decision making. a committee tends to pool information and ideas from a group comprising different skills and views, and it also provides insurance against extreme preferences and outcomes. one of the arguments against committees is that they tend to be inertial and over time may be subject to'group think '. the structure and governance frameworks of monetary policy committees differ across countries. sometimes this is because of the legislative environment that governs the committees. in other instances, the institutional design and processes of the committee are determined by past practice and institutional culture and traditions, as well as by the mix of people and personalities. to give some examples. in the united kingdom, the mpc consists of internal and external members, with the latter appointed by the chancellor. each member is individually responsible for his or her vote and has to explain, if asked, for example by a parliamentary committee, why they voted in a particular way. in the european central bank ( ecb ), by contrast, each member state appoints one member to the governing council, the main decision - making body of the ecb. each member has a vote and these votes are not revealed ; the governing council takes collective responsibility. the united states practice is a bit more complex. the federal open market committee ( fomc ) consists of the 7 members of the

gertrude tumpel - gugerell : policy challenges facing the euro area speech by ms gertrude tumpel - gugerell, member of the executive board of the european central bank, at the distinguished speaker seminar, european economic and financial centre, london, 23 july 2010. * * * ladies and gentlemen, it is a great honour for me to have been invited to speak here today by the european economic and financial centre. my topic today will be the policy challenges facing the euro area, which is a rich topic : in fact, there is no shortage of challenges for us. what started as financial turmoil in august 2007 turned into a global financial crisis following the failure of lehman brothers in september 2008. more recently we have witnessed an exacerbation of sovereign debt concerns. the economic outlook is still surrounded by a high degree of uncertainty. however, a path out of the worst financial crisis of our generation seems to be in sight, and there are signs that a recovery is under way. yet, the return to normality could be gradual. it requires support. therefore, we need to assess all developments carefully. as albert einstein once said, we have to “ learn from yesterday, live for today, hope for tomorrow. the important thing is not to stop questioning ”. in fact, we have learnt a lot from the past few years. facing the current challenges and addressing them now and in the future will be key to more sustainable growth, more stable financial markets and an even more successful euro. i will start with the achievements of the euro and the single monetary policy, particularly in recent years. i will then set out some of the main challenges ahead, along with the remedies and policy priorities. i. the ecb ’ s actions during the crisis the euro area has been the focus of a great deal of attention in the last few weeks. but let me be frank : the euro itself is not the issue. quite the contrary, the euro is an achievement that has met with great success. the introduction of the euro has resulted in deeper financial and economic integration with great benefits for the economy of the euro area as a whole and beyond. intra - euro area trade in goods and services has increased notably. the “ home bias ” in financial markets has declined steadily. and, since the launch of the euro, an increasing share of foreign direct investments are taking place between euro area countries. perhaps the most important benefit of the euro has been the success of the monetary policy framework for the