The increasing momentum of the political process leading to monetary and economic integration in Europe contrasts with the growing awareness that the integration strategy laid down in the Delors Report contains many unresolved conceptual problems, which have prompted many economists to reject the whole blueprint.
In Discussion Paper No. 405, Peter Bofinger accepts the overall gradualist approach of the Report and its final target of a federative European System of Central Banks (ESCB). He focuses on the suitability of institutional arrangements of the ESCB for maintaining the stability of both the price level in the European currency area and of the EMS itself, in the face of speculative attacks, and he seeks both to identify inconsistencies in the Report's proposals and to provide some tentative solutions.
Bofinger argues that the lack of a comprehensive conceptual framework for the coordination of national monetary policies increases the difficulties faced by the Committee of Governors in establishing the ESCB's commitment to the maintenance of price stability, in avoiding conflicts between this direct coordination mechanism and the indirect coordination mechanism effected by the EMS, and in safeguarding the stability of the EMS following the complete abolition of intra-EC capital controls and the entry of sterling.
Bofinger argues that the intermediate, transitional `Stage II' of the Delors Report is not necessary for the achievement of a decentralized ESCB of the type advocated by Delors for Stage III. In addition, there are a number of drawbacks associated with the proposals for a limited `sharing of responsibilities' in the field of monetary policy (adjustments of short-term interest rate differentials, intervention policies vis-à-vis third countries, common European reserve requirements). The responsibilities of the ESCB in each of these areas would undermine considerably the autonomy of national central banks, and a European minimum reserve policy would have the specific disadvantage of being both less strict and more complicated than the coordination procedure already envisaged for Stage I.
Bofinger proposes an alternative approach, in which Stages I and II are merged by increasing the responsibilities of the Committee of Governors and granting an autonomous status to the Governors of all national central banks.
Bofinger also discusses the possibility that the final stage of EMU as proposed by Delors may be incompatible with the international monetary order and proposes a novel incentive for the members of the ESCB council to follow a policy of price-level stability: their salaries should be fixed in nominal terms over the whole duration of a term of office.

Unresolved Issues on the Road to Economic and Monetary Union (EMU) in Europe
Peter Bofinger

Discussion Paper No. 405, March 1990 (IM)