mr. issing comments on the problem of credibility of the european central bank contribution of prof. otmar issing, a member of the directorate of the deutsche bundesbank, at the annual meeting of the american economic association, held in chicago on 4 / 1 / 98. on january 1, 1999 the curtain will rise on a worldwide premiere. it will be the first time ever in history that sovereign states have abandoned their own currencies in favour of a common currency and transferred their monetary policy sovereignty to a newly created supranational institution. what makes this process all the more unusual from an historical perspective is that the national currencies involved are not being abolished because of their weakness ; on the contrary, proof of a large measure of monetary stability is demanded as a precondition for what is essentially a political project. the euro will likewise have to demonstrate a large measure of stability if it is to contribute successfully towards integrating europe and not towards dividing it. various individuals have vowed emphatically in the past that this will indeed be the case. however, public statements in favour of a stable euro hardly constitute a copper - bottomed guarantee on their own. why should rational citizens be expected to believe these promises? it is a question of the credibility of announcements and of economic institutions. the catchword “ credibility ” points to a mountain of publications which, following the pioneering work of kydland and prescott ( 1977 ) and of barro and gordon ( 1983 ), have appeared since then. the european central bank ( ecb ) will represent the birth of a completely new institution. the euro will replace national currencies which - like the d - mark - can look back on a successful past history. on the other hand, the potential participating countries are insisting on retaining their political sovereignty. for the foreseeable future, therefore, monetary union will lack the reinforcement of a political union. understandably, this state of affairs has fired the imagination of economists. the publications on this subject now fill whole libraries. even if, ultimately, the complex phenomenon of european monetary union ( emu ) cannot be clinically dissected, i would like to emphasise one point : the credibility of the ecb. in the maastricht treaty the signatory states opted for a very specific central bank constitution. does their choice stand up to the critical assessment of professional economists? what criteria for the establishment of a central bank can be derived from theory and empirics? is

##seeable future without the additional support of a political union. for this reason, the right choice of participants based on the convergence criteria takes on supreme importance. the public finance position plays a particular role in this assessment. the fiscal criteria have to be met on a sustainable basis, in other words not just at the beginning of stage 3. finally, the member states must implement the crucially necessary reform of their labour markets and in general significantly cut back the dense jungle of overregulation. without a far greater degree of flexibility at the microeconomic level it will neither be possible for monetary union to yield the desired benefits nor for the ecb to find broad and ongoing acceptance for a monetary policy geared to ensuring price stability in accordance with the maastricht treaty.