ABSTRACT
The experience of the D-mark episode demonstrates how an independent central bank can preserve the stability of the currency in the context of policies which are consistent with such an institutional arrangement. The statute for the central bank could be transferred to the European level. When the European Monetary System was established in 1979, it soon became apparent that, against early intentions, the system was based on its strongest currency, the D-mark. The other fundamental element of the D-mark regime is the institutional arrangement. The statute of the European Central Bank’s contains a clear mandate – priority of the maintenance of price stability – and endows the institution with independence from political pressure to allow for a monetary policy that can reach that goal. The same is true for structural policies to fulfil the flexibility criteria which would guarantee that the single monetary policy fits all.
