Summary

It is very hard to see that anybody could advocate the principle of price stability, whether one believes in free a market economy or not. It is common sensical that money, the pieces of paper maintain the value that is printed on them. One could imagine what would happen if any other unit of measurement would change from time to time, depending on the ruling government. With right wing parties in charge a meter would be only 90 cm and with left wing parties in charge a meter would be 110 cm. Certainly the working of the economy would be severely damaged by the loss of confidence in the size of the basic unit of measurement.

One can argue about the desired level of inflation rate, should it be 1-2% or maybe 1-4% per year.There is no perfect answer for price stability. On the contrary the economy works best if the prices of individual good can freely move up or down, informing consumers and producers in the process. This information, however, should not be drowned by general increases in prices. It would severely influence the operation of the price mechanism and prevent the markets from working correctly.

Having sound economic objectives per se as a base for building lasting, sustainable economic prosperity is by no means only connected with monetary unification. This tendency can be seen as a universal development and the convergence criteria stated in the plan for monetary union can be seen as intermediary term targets for any healthy country. As Michael Camdessus, the managing director of the International Monetary Fund says about the macroeconomic policies in EMU -region: " these policies would be fully consistent with the kind of sound and coherent medium-term strategy , aimed at sustainable growth with low inflation , that the IMF recommends for all countries." (IMF Survey Vol 21, NO 15, 1992) In light of this I would see this development as necessary but not sufficient for the prosperity of the future Europe.

A major issue in independence is the internationalisation. The interconnection of financial markets has created a greater need for transparency of economic policy. Low inflation targeting results not only in macroeconomic performance being improved but also markets do not demand such high risk premiums because unanticipated inflation expectations will diminish. Interest rates will be lowered which in turn has effects on investment and growth. This was not a problem in the age of closed financial markets but today the state of affairs is different. Countries whose fiscal policies are judged imprudent have to accept an interest rate premium over first class debtors. If the policymaking of those countries do not react to these pressures, the economy is likely to dive into the greater difficulties with raising interest rates and a lack of confidence.

One critical issue for the European Central Bank in finding its place among the future institutions is legitimacy of its existence. This issue can be seen more broadly as concerning European Union as a whole as presented by Dr. Esko Antola. He suggests that in European Union level legitimacy should be gained by achievements, but that is difficult task to do.( Antola, luentomuistiinpanot 23.11.97) This, in the case of the ECB appears difficult too because it is likely that monetary policy measures will not always ease the economic situation in the member countries. National central banks therefore have an important role in convincing their citizens of the wisdom of tight monetary policies. Dr Pekkarinen stated the problems of co-ordinating the work of the German - France axis in decision making organs and therefore United Kingdom joining as soon as possible would be good.( Pekkarinen, luentomuistiinpanot 14.10.97) To settle and balance the issues in the decision making organs. One critical issue is, as one can see from the New Zealand case, how credible the agreement on the ECB will be. For this reason a strong formal commitment to price stability is imperative. It helps to gain credibility in eyes of market participants and makes it as easy as possible to start the operation of the ECB.

No matter what the future monetary circumstances in Europe and in the World will be, the position of the Central Bank of Finland will not be in danger. There will also be need for those with area specific expertise in the monetary decision making and for the nation per se it will be naturally good if these individuals will stay in the country and their skills are maintained. The challenge is the new scope of the monetary policy. We well be dealing more with European and global issues in preparing the monetary policy. In this respect it sounds reasonable to move on to co-operation as soon as possible. As an insider one gets into the heart of decision making, getting the most recent information on future plans. This helps to prepare the national economy to meet new challenges.