klaus liebscher : the role and functioning of the european system of central banks ( escb ) speech by mr klaus liebscher, governor of the austrian national bank, at the 5th legal alumni web of the salzburg seminar ( lawss ) symposium, salzburg, 6 july 2004. * 1. * * introduction i gladly accepted the invitation of the alumni web of the salzburg seminar to speak to you about the architecture and the functioning of the european system of central banks, addressing, in particular, the role of the oenb in this framework. in early 1999, the adoption of the single monetary policy by the ecb marked the successful transition to stage three of economic and monetary union ( emu ). the introduction of euro banknotes and coins as legal tender concluded the process of establishing a single monetary area, which at that point finally became a tangible reality for all european citizens. it is no exaggeration to say that the birth of the euro was a truly historic event. for the first time in history, a group of independent countries has relinquished its sovereign power to issue money to a newly created supranational institution and given up its national currencies to adopt a common currency. virtually over night, the euro became the single currency for 11 - and since 2001, when greece introduced the euro, for 12 - sovereign member states of the european union. together, these countries with a population of some 300 million represent an economic area comparable in terms of economic power to the u. s. market. economic and monetary union and the euro have been a success story : exchange rate risks between the member states of emu have been eliminated and there has been considerable progress in disinflation and economic convergence in the euro area. the euro is well on its way to firmly establish itself as an internationally renowned currency, thus becoming a solid cornerstone of the international monetary system. looking back, we can say that austria ’ s accession to monetary union represented a major step for the oenb, just like for all central banks of the participating countries. the integration into the escb with the european central bank ( ecb ) at its helm was an entirely smooth process. the national central banks of the euro area countries thus formally relinquished their monetary sovereignty. since january 1, 1999, the sole responsibility for the single monetary policy has been vested in the governing council of the ecb, which is independent and not bound by any instructions. let me underline at this point that the division of responsibilities

of our prerogatives should be to integrate developing and transition economies in such a way that they can maximize the benefits of globalization, while minimizing the costs. this implies, specifically, helping these countries attract sufficient sustained private capital flows, while strengthening measures for crisis prevention and better crisis management, supporting policies and structural reforms that facilitate development, and helping secure sufficient external funding to sustain their growth and poverty reduction. while not being a “ development ” institution in spirit and by design, the fund ’ s role in the developing countries has nevertheless become an essential and integral part of the efforts of the whole international community to advance development. especially by launching the hipc ( highly indebted poor countries ), the prsp ( poverty reduction and strategy papers ) and the prgf ( poverty reduction and growth facility ) initiatives, the fund substantially reframed its role in low - income countries, making poverty reduction and growth the key objectives and modalities for programs supported by the fund. while the prgf relates strictly to the fund ’ s role, the hipc and the prsp initiatives guide the cooperation with developing countries, the fund, and also the world bank. i see the fund ’ s role in developing countries and especially its financing role as catalytic rather than substantial. the fund should allocate only a limited amount of financial aid to developing countries in support of their progress towards macroeconomic stability and financial soundness. turning to transition economies, i believe that we often overlook the strong track record both the imf and the world bank have established in these countries. while the bretton woods institutions were caught as much by surprise by the collapse of communism as everybody else, their involvement in these countries was instrumental to their integration into the world economy. at the beginning of the 1990s, the majority of transition economies had some form of imf involvement via a fully - fledged imf program or technical assistance. the imf together with the world bank worked hard to stabilize the economies of these countries, devise economic policies and build modern institutions, thus transforming many of these economies into today ’ s very successful market economies. owing to a common history and its geographic location, austria has a particular interest in the stability and economic progress of the transition economies. austria had already started in the late 1980s to develop extensive economic ties with the transition economies, which have increased substantially over time. strong trade linkages, very high levels of foreign direct investment and support for their integration into either the eu or other international institutions have