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On the efficiency-legitimacy trade-off in EMU

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  • Francisco Torres

    ()
    (Universidade de Aveiro)

Abstract

This paper addresses the question whether the process of European monetary integration implies efficiency-legitimacy trade-off. The paper considers that the process of monetary policy delegation to the European Central Bank (ECB), ratified by all European Union (EU) parliaments, was a non-zero-sum game, increasing both the efficiency and the legitimacy of monetary policy in the eurozone. There was however a change in the nature of delegation: the initial principal (EU national governments and/or parliaments) delegated to the agent (the ECB) control over its behaviour in regard to monetary policy. The paper distinguishes two types of constraints for monetary policy: credibility constraints and political constraints. The change in the nature of delegation of monetary policy (tying the hands of the principal) was a means of dealing with credibility constraints. The paper goes on investigating whether, and if so to what extent, the European Parliament (EP) is fit to function as a principal of the ECB as a means of dealing with political constraints. Thus, the paper analyses the European Parliament’s increased involvement in overseeing the Central Bank’s activities, aiming at understanding whether and how that new and special role (an informal institution of dialogue) could affect the trade-off between efficiency and legitimacy in the conduct of monetary policy in the eurozone.

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Bibliographic Info

Paper provided by Departamento de Economia, Gestão e Engenharia Industrial, Universidade de Aveiro in its series Working Papers de Economia (Economics Working Papers) with number 36.

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Length: 31 pages
Date of creation: Mar 2006
Date of revision:
Handle: RePEc:ave:wpaper:362006

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Keywords: Economic and Monetary Union; monetary policy delegation: efficiency and legitimacy; accountability; responsiveness; principal-agent relations; governance;

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  1. Haan, J. de & Amtenbrink, F. & Eijffinger, S.C.W., 1998. "Accountability of Central Banks: Aspects and Quantification," Discussion Paper, Tilburg University, Center for Economic Research 1998-54, Tilburg University, Center for Economic Research.
  2. Giavazzi, Francesco & Pagano, Marco, 1988. "The advantage of tying one's hands : EMS discipline and Central Bank credibility," European Economic Review, Elsevier, Elsevier, vol. 32(5), pages 1055-1075, June.
  3. Bovens, Mark, 2006. "Analysing and Assessing Public Accountability. A Conceptual Framework," European Governance Papers (EUROGOV), CONNEX and EUROGOV networks 1, CONNEX and EUROGOV networks.
  4. Francisco Torres, 2003. "How efficient is Joint Decision-Making in the EU? Environmental Policies and the Co-Decision Procedure," Working Papers de Economia (Economics Working Papers), Departamento de Economia, Gestão e Engenharia Industrial, Universidade de Aveiro 05, Departamento de Economia, Gestão e Engenharia Industrial, Universidade de Aveiro.
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