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On the efficiency-legitimacy trade-off in EMU

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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 eurozone.

Suggested Citation

  • Francisco Torres, 2007. "On the efficiency-legitimacy trade-off in EMU," NIPE Working Papers 22/2007, NIPE - Universidade do Minho.
    • Handle: RePEc:nip:nipewp:22/2007
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    1. Francesco Giavazzi & Marco Pagano, 1991. "The Advantage of Tying One's Hands: EMS Discipline and Central Bank Credibility," NBER Chapters, in: International Volatility and Economic Growth: The First Ten Years of The International Seminar on Macroeconomics, pages 303-330, National Bureau of Economic Research, Inc.
    2. J. De Haan & F. Amtenbrink & S.C.W. Eijffinger, 1999. "Accountability of central banks: aspects and quantification," Banca Nazionale del Lavoro Quarterly Review, Banca Nazionale del Lavoro, vol. 52(209), pages 169-193.
    3. Simon Hix, 2001. "Legislative Behaviour and Party Competition in the European Parliament: An Application of Nominate to the EU," Journal of Common Market Studies, Wiley Blackwell, vol. 39(4), pages 663-688, November.
    4. Follesdal, Andreas & Hix, Simon, 2005. "Why There is a Democratic Deficit in the EU: A Response to Majone and Moravcsik," European Governance Papers (EUROGOV) 2, CONNEX and EUROGOV networks.
    5. Bovens, Mark, 2006. "Analysing and Assessing Public Accountability. A Conceptual Framework," European Governance Papers (EUROGOV) 1, CONNEX and EUROGOV networks.
    6. John Williamson, 1994. "The Political Economy of Policy Reform," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 68, October.
    7. 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) 05, Departamento de Economia, Gestão e Engenharia Industrial, Universidade de Aveiro.
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    Cited by:

    1. Francisco Torres, 2007. "The long road to EMU: The Economic and Political Reasoning behind Maastricht," Working Papers de Economia (Economics Working Papers) 50, Departamento de Economia, Gestão e Engenharia Industrial, Universidade de Aveiro.

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    More about this item

    Keywords

    Economic and Monetary Union; monetary policy delegation: efficiency and legitimacy; accountability; responsiveness; principal-agent relations; governance.;
    All these keywords.

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes

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