ABSTRACT
Monetary policy in the eurozone is made by one supranational body, the European Central Bank; the other principal economic policies in the eurozone are made by the governments of each Member State composing the eurozone. While there is a single monetary policy for the entire eurozone, there are as many different macroeconomic and microeconomic policies as there are Member States. In order to understand the coordination of economic policies between the governments of the eurozone Member States, this chapter describes the economic policy framework that has evolved in the European Union to coordinate policies between Member States that essentially retain all their national powers in most economic policy areas. Since the macroeconomic policies taken by all the eurozone Member States have an impact on the monetary policy decisions taken by the ECB, we also describe the institutional channels that have been set up for the communication between the ECB and the Community bodies responsible for the coordination of the Member States’ economic policies. This entire economic policy framework, composed on the one hand of 12 national governments and the Community bodies responsible for the coordination of their policies, and on the other hand, of these Community bodies interacting with the one central bank, is complex and bureaucratic, a criticism often levelled by expressing the view that the eurozone is an economic space with a single central bank and no single ‘economic government’. As shown below, this is an exaggeration. However, the fear of a possible economic policy-making vacuum at the eurozone level in the event of a major financial crisis is justified since the European Central Bank has not been given the power to play the role of the ‘lender of last resort’. We therefore also describe in this chapter the role of the national governments, Community bodies and the Eurosystem in the prudential supervision of financial institutions and in the maintenance of stability of the financial system.
