Merely the first European bank crisis


PARIS -- It is astonishing that the real questions about Europe's new single currency, the euro, and about the new European Central Bank, were never addressed during the 12-hour row among European governments which ended in Sunday's sad compromise on the bank's president.

Those questions are, can this bank truly be independent? And if it tried to be truly independent, could it survive? The answer to both clearly is "no."

The affair has been presented as a power struggle between German Chancellor Helmut Kohl and French President Jacques Chirac, in which Mr. Kohl lost to his domestic political harm, and Mr. Chirac won with a victory that damages France's reputation in Europe.

Don't bank on this

What really was proven was that the Europeans still do not know what this bank is to become. There is an agreed form of words which defines it, but its actual weaknesses and potential strengths escape the definition.

The 1991 Maastricht treaty promised the bank's independence, in part by guaranteeing its president an eight-year term. The decision in Brussels that the newly elected president will "voluntarily" yield to a Frenchman after four years demonstrated that the bank will not be independent. But how could it be independent? The idea is unrealistic and unhistorical.

The quarrel has been doctrinal, over what a European bank should be in theory. The question of what it actually could be, or could become, has been ignored. Those who have wanted a totally independent bank asked for something which exists nowhere else in the world. There is no central bank which is not subordinate to a government.

There is a European parliament, still largely decorative, and a European Commission, agent of 15 governments. But there is no European government. There are no pan-European political parties or unions or pan-European press.

The European Central Bank, however independent in statute, is ultimately accountable to the European currency's 11 member-governments, but as last weekend's events demonstrated -- if demonstration were needed -- those governments are divided. Attempts to alter the policy or function of the bank in the future will produce confrontation and the

threat or use of vetoes.

Those who have believed in a wholly independent bank would give control of the single European currency to six people appointed because they are experts in finance, charging them with a purely technical mandate concerning currency stability, instructing them to ignore other issues.

The 11 countries' growth, decline, recession or depression, their levels of employment, the social and political consequences for them of a given interest rate, all would be excluded from the bank's deliberations.

There is no precedent or parallel for this. The German Federal Bank -- the Bundesbank -- is responsible for protecting the stability of German currency but is also legally obliged to support the general economic policy of the government currently in office.

The Bundesbank council is made up of people from the political world as well as professional bankers. The president, Hans Tietmeyer, formerly served in the German ministry of finance and on the staff of Helmut Kohl. The vice-president is a former finance minister in the state of Rhineland-Palatinate. Another member was government spokesman for North Rhine-Westphalia. These are not isolated technocrats.

The U.S. Federal Reserve Bank is governed by seven people nominated by the president and agreed to by the Senate, a political process. The chairman is appointed by the president but must regularly report to Congress on the state of the nation's economy and the rationale for the bank's policies. This means that the U.S. Federal Reserve is accountable to both the executive and legislative branches of government.

It is insulated from short-term political interference but in the longer term cannot ignore the political will of either branch of government.

The French central bank's council on monetary policy includes former union leaders, former industrialists, a former finance minister and an experienced economic journalist.

The six members of the European Central Bank directorate, in contrast, consist of three former central bankers, a former financial civil servant, the former chief economist of the Bundesbank and the former head of the body supervising Italy's stock markets. These are expert inhabitants of the closed world of finance.

To give them politically unaccountable power over Europe's single currency, with the statutory requirement to govern it solely to prevent inflation, invites an eventual crisis, which will set individual national economic or political interests against the bank's policies.

Unresolved issues

This is the problem that should have been addressed last weekend. Unaddressed, and in principle unresolved, it threatens the euro's future. No one in Brussels seems to have been capable of setting all this out clearly and making people pay attention to it. That was a failure both of the European Commission and the British EU presidency.

Mr. Kohl on Sunday sacrificed his private and political interests to European unification. Mr. Chirac treated the affair as a clash of national ideologies and, implicitly, of power. The press has all but completely ideologized the issues. There had to be a crash. It will not be the last European bank crisis.

William Pfaff is a syndicated columnist.

Pub Date: 5/07/98

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