mr schieber takes a look at european monetary policy under the sign of the euro lecture delivered by mr helmut schieber, member of the directorate of the deutsche bundesbank, in the context of the function “ germany – powerhouse for europe ’ s capital market? ”, organized by finanzplatz e. v. ( frankfurt ), held in new york on 22 november 1999. * * * i i am delighted to have been invited to speak to you in the context of this function. it is, i believe, a rare privilege for a central banker to feature as a speaker at what is – ultimately – a marketing event. a well - known us central banker once said, however, that it is, in principle, always a mistake to invite a central banker as one ’ s speaker, since he is not allowed to say anything that is of interest to his audience, while the audience mostly already knows everything that he is allowed to say. today i shall try to get round that dilemma as best i can. figure 1 the launch of the euro - a milestone on the way to european integration the euro is a new currency which has superseded the old currencies in 11 of the 15 member states of the european union. 11 sovereign states, while retaining national responsibility for their fiscal and general economic policies, have set up a supranational central bank which bears the sole responsibility for the common monetary policy. the launch of the euro is associated with both political and economic expectations : politically speaking, with hopes of favourable repercussions on european integration ; in economic terms, with hopes of further progress towards the enhancement of the common market through the disappearance of exchange risk and the intensification of competition. the launch of the euro for 11 member states of the european union constitutes the most far - reaching change in the international monetary order since the collapse of the bretton woods system in 1973. for the first time, 11 sovereign states bearing continued national responsibility for their fiscal and economic policies have set up a supranational central bank bearing the sole responsibility for their common monetary policy. the launch of the euro has aroused both political and economic expectations : politically speaking, the transition to the single currency marks a further – consistent – milestone on the road to european integration. in the meantime, the european union comprises 15 member states ( the united kingdom, denmark, sweden and greece have failed to join the monetary union – for very different reasons ) ; 12 other european states are seeking admission

of term deposits • exchange • foreign swaps • • exchange • foreign swaps • • reverse transactions - longer - term refi - • reverse transactions nancing operations fine - tuning operations - main refinancing • reverse transactions operations absorption of liquidity types of transactions provision of liquidity open market operations monetary operations escb monetary policy operations the governing council has defined its primary objective, namely that of maintaining price stability, in quantitative terms. according to that definition, price stability obtains if it is ensured over the medium term that the year - on - year rise in the harmonized consumer price index ( hcpi ) for the euro area is less than 2 %. to realize the objective of price stability, a monetary policy strategy which rests on two pillars was devised. in the first place, the governing council announced a reference value for the growth of the money stock m3 ; secondly, a broad range of leading economic indicators is constantly being analyzed in order to assess the prospects for price movements and the risks to price stability. central bank money is mainly provided through open market operations, a weekly tender being offered with a maturity of two weeks and a monthly one with a maturity of three months. through the institution of two standing facilities, the movement of the overnight money rate is curbed by an interest - rate corridor, i. e. a ceiling and a floor to the overnight money rate. the eurosystem also has a wide range of fine - tuning instruments. owing to the buffer function of the minimum reserve system, however, a comparatively steady development of the money - market rates is assured, so that the eurosystem has not had to intervene in the market with fine - tuning measures even once since the start of monetary union. you can gather the full range of the monetary policy instruments of the eurosystem from the figure ; unfortunately, i am unable to go into more detail here, for time reasons. in my opinion, the monetary policy strategy and arsenal of instruments of the eurosystem are convincing and fully in keeping with international standards. the particular significance of the two standing facilities is demonstrated, for instance, in connection with the y2k problem. the marginal lending facility sets the ceiling on the overnight money rate, since the counterparties of the escb can obtain overnight liquidity on an unlimited scale against the lodging of sufficient collateral. unless i am much mistaken, the fed has just set up a similar facility for the turn of the year. iii just under 11 months after the launch of