On the efficiency-legitimacy trade-off in EMU

Francisco Torres (ftorres@ucp.pt)

No 22/2007, NIPE Working Papers from NIPE - Universidade do Minho

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.

Keywords: Economic and Monetary Union; monetary policy delegation: efficiency and legitimacy; accountability; responsiveness; principal-agent relations; governance. (search for similar items in EconPapers)
JEL-codes: E58 E61 E65 (search for similar items in EconPapers)
Date: 2007
New Economics Papers: this item is included in nep-mac and nep-mon
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Working Paper: On the efficiency-legitimacy trade-off in EMU (2006)
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