ECB vs Bundesbank: Central Bank Models and Monetary Policy

Introduction and Research Overview

This research examines whether the European Central Bank (ECB) can be successful at emulating the strategic model set forth by the German Bundesbank. The discussion focuses on the fact that the ECB is facing different problems as it is still in its developmental phases. The investigation seeks to determine whether the tools of the Bundesbank can provide support for the ECB in achieving economic stability in the European Monetary Union.

Research on this topic is important because the European Union is expected to expand in the years to come. In addition, many members of the European Union have opted to adopt a single currency. This means that economic stability is even more essential to ensuring that the European Monetary System operates efficiently.

The methodology for this research encompasses several forms. First, it contains background information about both the ECB and the Bundesbank. In addition, it includes a literature review to give the reader and the researcher an understanding of prior research. Data for the literature review were obtained from secondary sources such as academic periodicals.

The research also draws on information taken from the internet, limited to official websites for the ECB and the Bank of England, as well as accredited internet databases. Interviews were also conducted to capture various perspectives on the ECB. These interviews involved both members of the ECB and members of the public. The researcher sought to discover whether public perception of the bank's performance is an accurate reflection of its actual performance.

Once all data were gathered, they were used to compare the two institutions. This enabled the researcher to determine whether the ECB can successfully implement the standards established by the Bundesbank, and whether the structures of the two banks are analogous.

The goals of central banks are broad-ranging but tend to focus on price stability. The current role of central banks is still developing, with many arguing that their current tasks remain inadequate, despite the model provided by the Bundesbank. Both Bob Mundell and Milton Friedman agree that when it comes to managing monetary policy, the overall record of central banks is very poor (Dowd, 2001).

Central banks have been in existence for centuries, but their roles and operations have differed greatly. Central banking texts often trace the beginning of central banking to the end of the seventeenth century and the creation of the Bank of England, with Britain's superior economic, financial, and military standing credited, at least in part, to the creation and operation of that institution (Weingast, 1992; North and Weingast, 1989).

The Bank of England has been essential to the economic stability of the United Kingdom. According to The Bank of England, 1891–1944, Vol. 2, since its foundation in 1694 the bank operated as a joint-stock company. Sayers (1996) also asserts that "Between 1890 and 1946 the formal constitutional arrangements of the Bank were modified only once, by a Supplemental Charter granted in 1896, though its duties, in relation for example to the issue of notes and payments in gold, were affected by twelve Acts of Parliament between 1913 and 1939" (p. 593). Indeed, the Bank of England was one of the first stable central banks in the world.

The Bundesbank has also received a great deal of scholarly attention and has served as a benchmark for central banks for many years. Frazer (1994) explains that the Bundesbank was once a dominant force in the re-establishment of the German economy, while Engelen (2002) argues that the once-dominant Bundesbank is now secondary to the European Central Bank.

The European Central Bank is now the primary bank for the European Union. Dyson and Featherstone (1999) argue that the ECB was created to provide the EMU with monetary policy. Dunn (2001) explains that there have been many problems associated with the management of the institution, noting:

"The years 1999 and 2000 have provided a difficult beginning for the European Monetary Union (EMU) and for its managing institution, the European Central Bank (ECB). The euro, which was almost universally expected to be a strong currency, has depreciated sharply and is now the source of widespread negative commentary. Citizens of Denmark voted against joining the monetary union by a considerably larger majority than had been anticipated, and there is now virtually no chance that a referendum for entering the EMU could pass in the United Kingdom or Sweden. The management of the ECB has been widely criticized, with its president being the frequent target of unkind press comments." (Dunn, 2001, p. 14)

The information found thus far asserts that the Bundesbank is a benchmark for many central banks, and suggests that the ECB has had trouble in the implementation of its banking system. The proposed research delves into these subjects in greater detail to determine whether the ECB has the ability to duplicate the success of the Bundesbank.

The Formation and Role of the German Bundesbank

To identify the association between the two institutions and evaluate the potential of the ECB to perform at the same level of professionalism and achievement as the Bundesbank, a better understanding of the Bundesbank is needed. This requires a detailed account of the Bundesbank banking system, including the developments that led to the success it experienced in the last few decades.

The German Bundesbank came to prominence following the Second World War. Its steady development was a response to the political and economic climate of the era. Ultimately, the Bundesbank became the benchmark for many other European banks and played an important function in the creation and development of the ECB.

According to Fifty Years of the Deutsche Mark: Central Bank and the Currency in Germany since 1948, Article 3 of the Bundesbank Act asserts: "Bundesbank regulates the amount of money in circulation and of credit supplied to the economy, and arranges for the execution of payment transactions. Its goal is to safeguard the currency, meaning to safeguard the value of money" (Baltensperger, 1999, p. 219).

The Bundesbank was very successful in its endeavours to maintain economic stability and has been historically regarded as one of the finest banking systems in the world. The founding of the Deutsche Bundesbank — also called the Bank deutscher Länder — came at a pivotal time in European history.

Today, Germany may be viewed as shaped by post-World War II allies and the influence they had on the economic and political climate of the country. In particular, both the Soviet Union and the United States sought to influence the region according to their own interests and vision for the future (de Haan, 2003). This political scenario aided the development of the Bundesbank. Germany was in a strategic position, and during the Cold War the former allies believed that Germany was essential to prevailing — a belief based on the premise that Germany was a conduit to mainland Europe.

In 1949, the German constitution was created under American influence (Uwe, 1994). The Grundgesetz (the Basic Law) established two authorities: the Bund, comparable to the federal authorities in the United States, and the Land, akin to state authorities (Uwe, 1994). This revived the federalist tradition that had existed in Germany previously. Notably, Article 88 foresaw the need to create a central bank in the future, but details concerning how it should be formed were left open for future legislation (Uwe, 1994).

Prior to the creation of the Bundesbank, the Bank deutscher Länder (BdL — Bank of German States) dictated monetary policy and had the task of co-ordinating the central banks of the regional states known as the Länder (Uwe, 1994). The Bank deutscher Länder was independent — not controlled by the government — and organised into regional offices based in the Länder. However, its policies required a level of approval from the Allied Banking Commission governing the western zone. The bank held the power of veto (Uwe, 1994), though that veto was never used, partly due to the way Wilhelm Vocke, the president of the Bank deutscher Länder, managed the difficult political situation, successfully negotiating and co-ordinating policies with the Commission (Uwe, 1994).

By 1950, legislation for the creation of a central bank had begun, formed under Chancellor Konrad Adenauer. Differences emerged between the parties involved regarding the appropriate relationship between the central bank and political authorities. Fritz Schäffer, the finance minister, argued that the veto formerly held by the Allied Banking Commission should be transferred to the Federal Government, with the Bundestag overseeing the bank (de Haan, 2003). Adenauer similarly argued that central bank policy should be controlled by the government (Uwe, 1994). Vocke, by contrast, believed the bank should be independent of government control, a position also supported by Ludwig Erhard — a government minister known as the "father of Germany's economic miracle" (de Haan, 2003). These differences of opinion created a difficult relationship between Adenauer, the Bank deutscher Länder, and its successor the Bundesbank, and it was 1957 before the Bundesbank Act was finally passed (Uwe, 1994).

A key area of success for the Bundesbank was price stability and the control of inflation. The 1920s had seen severe difficulties caused by hyperinflation, and following Germany's defeat in the Second World War there was renewed pressure on the economy and a strong demand for stability — a culture that was inherited and adopted by the Bundesbank and retained as a core value throughout its history (de Haan, 2003).

During the Weimar Republic era, hyperinflation caused the currency to collapse. Before the First World War the exchange rate had stood at 4.2 Reichsmarks to the dollar; by 1919 the Reichsmark had halved in value (Hetzel, 2002). The downward spiral was eventually halted by the Reichsmark reforms of 1923, following the peak of hyperinflation. A new currency was introduced, backed by a guarantee from a non-governmental body, laying the foundation for a period of economic stability lasting from 1924 to 1928 (Hetzel, 2002).

The failure of the Weimar Republic ultimately contributed to the rise of the Nazi Party and World War II. During the war, the German mark retained its value — not through genuine economic strength, but through the coercive enforcement of Nazi leaders (Hetzel, 2002). After Germany lost the war, many forms of exchange shifted from a market system to a barter system. Goods such as chocolate and tobacco obtained from occupying forces held greater market value until the introduction of the Deutschmark on 20 June 1948 (Hetzel, 2002).

Implementation of the Deutschmark occurred in several stages. Initially, individuals were allowed to exchange forty old marks for Deutschmarks. In August 1948, twenty old marks could be exchanged for twenty new Deutschmarks at a rate of ten old marks to one new Deutschmark for those with bank accounts. October 1948 saw the receipt of 65 pfennig on marks held (de Haan, 2003; Hetzel, 2002). This move re-established the German economy and later served as a model during the 1990 reunification of East and West Germany. The principal purpose of all these strategies was the creation of price stability and confidence in the economy.

The implication is clear: where there is economic failure, political collapse can follow. When the Bank deutscher Länder was established, currency protection was its central purpose, and to achieve this the bank needed independence from the government (Wood, 1993). This approach appears to be supported by comparative evidence: during this period Britain, where the central bank was not independent, saw a 1,600% increase in prices, while the United States saw 48% and Switzerland 300%. By comparison, Germany saw only a 250% increase (Wood, 1993).

This belief is evidenced in statements made by Bundesbank leadership on numerous occasions. President Helmut Schlesinger was known to hold that there was no such thing as "only a little inflation" (de Haan, 2003; Schlesinger, 1995). His successor Hans Tietmeyer, who took over in 1993, stated: "On one thing we are all in agreement: without a stable currency there can be no lasting economic prosperity and political stability" (Tietmeyer, 1993).

Within the Bundesbank's policy framework there is an accepted rate of unavoidable inflation, determined by the real rate of growth and changes in output prices (Kole, 1995). The Bundesbank Law supports this, stating that the bank shall "regulate the amount of money in circulation and of credit supplied to the economy, using the monetary powers conferred on it by this Act, with the aim of safeguarding the currency" (Bundesbank Law, paragraph 3, Lexis, 2004). No other central bank in Europe has this clear a statutory definition of purpose — nor does the American Federal Reserve (de Haan, 2003).

The concept of protecting the currency has two dimensions: externally, measuring the Deutschmark against other currencies; and internally, measuring the price of goods and services (de Haan, 2003). Both dimensions grew more important from the 1960s onward in an increasingly globalised economy — a lesson directly relevant to the ECB.

Beginning in the 1960s there was increasing instability in global currencies. Germany was a member of the Bretton Woods agreement and complained about its obligation to support the price of the dollar under the fixed exchange-rate scheme, which caused the Deutschmark to become too strong, increasing the money supply in Germany (de Haan, 2003; Cardwell, 2001). The eventual demise of Bretton Woods did not perturb the Bundesbank. In 1978, when the European Monetary System (EMS) was created, the Bundesbank reportedly opposed it but was forced to accept due to pressure from Chancellor Schmidt (de Haan, 2003).

The EMS was created in March 1979. Although it had many positive features, the development was problematic, mirroring difficulties seen under Bretton Woods, including currency speculation that central banks could not address. In 1993, there was an economic crisis in France and the bands within which currencies operated were enlarged, bringing relief to the Bundesbank (Smith, 1993). The Bundesbank's experience demonstrates a clear and proven ability to manage the economy, both independently and when constrained by international agreements.

The Bundesbank also operated differently from other banks by using only four tools to manage the economy: two interest rates (the discount and the Lombard rate), open market policy, and the setting of minimum reserve requirements (de Haan, 2000). Unlike some other banks, the Bundesbank did not directly control credit ceilings or interest rates; its influence was indirect, intended to affect long-term market conditions through "fine adjustments" (de Haan, 2000).

It may be argued that in the past, problems within the European banking system were not caused by the Bundesbank's management of the economy, but rather by other countries' inability to meet the same standards. The experience of Black Wednesday — when the UK joined the EMS at a rate the markets deemed too high, leading to a dramatic single-day interest rate increase and the pound's forced withdrawal — illustrates this point.

The Formation and Role of the European Central Bank

The European Central Bank (ECB) is the successor to the Bundesbank in the sense that it assumed responsibility for monetary policy across the eurozone. However, there are many differences between this larger, newer central bank and the older Bundesbank, which had a strong record in managing the economy and maintaining price stability. The unanswered question is how the ECB will manage to fulfil the same function as successfully for Europe as the Bundesbank did for Germany.

The Bundesbank did not disappear; in 1998 it became a branch within the ECB in a role of reduced influence (Dickhaus, 1998). This change in banking structure decreased the Bundesbank's ability to control the printing of money and ceded monetary policy decisions to the ECB (Europe Intelligence Wire, 2002; Dickhaus, 1998). This restructuring has also generated some apprehension that the new institution will not achieve the same level of success.

The way in which the principles of the Bundesbank apply to the ECB is difficult to determine. The culture of the Bundesbank — rooted not only in an organisational ethos but in a political and economic idea established over time — was central to its success (Appel, 2003; Collignon, 1997). Nevertheless, there are many structural similarities between the Bundesbank and the ECB, which uses it as a model. A statutory provision for monetary union, together with inclusion of the Maastricht Treaty as the primary framework, makes price protection the stated priority. Notably, however, there is already a divergence: the ECB prioritises price stability rather than currency protection specifically.

The financial feasibility of European Monetary Union is dependent upon the ECB, which is responsible for setting monetary policy and providing an environment that will facilitate price stability. Barrel and Dury (2003) explain:

"The European Central Bank has sole responsibility for setting the Euro Area interest rate with the prime objective of maintaining price stability in the Euro Area. As such, the ECB has to react to area-wide aggregates, and not developments in individual countries. The ECB designs its policy responses for the world it thinks exists and these responses will have different costs depending on the shape of the asymmetries in response between countries across Europe." (p. 56)

In 1997 there were 172 central banks; by 1998 this number had increased to 173 with the inauguration of the ECB (Pringle, 2002). From the inception of economic integration and the prospect of a single currency in Europe, there was a need for a central body to control monetary policy and the currency. Although the bank was officially established in 1998, it was the culmination of many years of contemplation and policy development.

At first glance, the foundation of the ECB appears to have originated from the Bundesbank. However, the foundations of the bank can actually be found in the Delors Report of 1989 (Abu Rashed et al., 1995). This report established a three-stage approach to the creation of a monetary union, identifying the ECB's responsibility as "studying and proposing concrete steps leading towards this union" (Lexis, 2004).

The first stage called for increased co-operation between the member states' central banks, including removing barriers to co-operation, co-ordinating budget policies, and monitoring economic policies. This stage ushered in the passing of the Maastricht Treaty in 1992 (Artis, 1992). The convergence criteria set in motion by that treaty were essential in bringing the economies of the various member countries into the same cycle. The criteria stated that government spending must be controlled; total government borrowing may not exceed 60% of GDP; and the government deficit cannot be greater than 3% of GDP. Inflation had to be controlled and could not exceed 5% of the average of the best three EU countries, and long-term interest rates had to be within 2% of the average interest rate of those same three countries. Prior to currency circulation, a minimum of two years' stability within preset bands was required (Higginson, 2004).

The second stage prepared for implementation of the single currency. During this stage, the European System of Central Banks (ESCB) narrowed the bands within which different currencies could fluctuate inside the exchange rate mechanism, and introduced a progressive transfer of national monetary policies to a centralised European institution. During the third and final stage, exchange rates were permanently fixed between national currencies, those nations adopting the single European currency replaced their national currencies, and responsibility for monetary policy passed to the ESCB (Begg, 2003).

The Delors Report was built upon the earlier Werner Report, though the Werner Report did not call for the same level of integration of both fiscal and monetary policies, making it more acceptable to member states at the time (Welink, 1997). The ECB was created in June 1998 with an executive board whose representatives were appointed by each of the eleven member countries committed to joining the single currency. The United Kingdom was not included, having exercised an opt-out clause negotiated in the Maastricht Treaty, and Greece was not yet committed to the EMU.

At the inception of the ECB, the first president was Wim Duisenberg. His tenure was expected to last until 2006, but he retired on 31 October 2003, following an earlier announcement that he would step down. His successor, Jean-Claude Trichet, the former head of the Banque de France, had been acquitted of fraud charges related to the collapse of Crédit Lyonnais before taking office (ECB, 2004).

The main purpose of the ECB is to regulate monetary policy to achieve the goals dictated by various treaties. Article 105.1 of the Maastricht Treaty states that price stability is the main goal and that the system must "support the general economic policies" (Article 105.1), with all other goals secondary to price stability (Noyer, 2002). The ECB defines price stability as "a year-on-year increase in consumer prices of below 2%" (ECB, 2004).

However, there appear to be difficulties with the monetary policies as implemented. One aspect essential to increasing market confidence is the way policy is communicated to the market. The Bundesbank released its target growth rates for the aggregate money supply for each period, making its policies transparent and understandable (Feldstein, 2000). The Bank of England similarly releases its targets in a single, easily understood form — expressed as an inflation rate — increasing transparency and market comprehension (Feldstein, 2000). The ECB, by contrast, uses two targets — referred to as "two pillars" of economic policy — which creates ambiguity in the markets (De Grauwe, 2002; Feldstein, 2000). This also appears to contradict the first principle of Jan Tinbergen's paradigm (Chatterji et al., 1994). Ambiguity is further compounded by the limited information the bank releases about how its deliberations are conducted, and by public disagreements between members, which suggest a lack of unified approach on significant matters such as the currency's value in international markets (Feldstein, 2000).

Unlike the Bank of England and the US Federal Reserve, the ECB does not release minutes of the meetings at which interest rate decisions are made. The governing council of the ECB is composed of an executive board of 18 members — including President Jean-Claude Trichet, Vice President Lucas Papademos, and Otmar Issing as chief economist — plus the governors of the national central banks of the eurozone member states (Barber and Haring, 2001).

During the initial days of the ECB, announcements about monetary policy were made after meetings that took place twice a month, creating confusion as markets tried to absorb the information (Barber and Haring, 2001). The decision was subsequently made to limit policy discussions to once a month. Two days before each meeting, an analysis of the monetary and economic situation — known as the "orange book" and prepared by Issing and over 150 economists — is sent to governing council members, along with recommendations concerning interest rate management (Barber and Haring, 2001).

Meetings are attended only by the 18 council members, their translators, and a minute-taker, with English as the official language. The European Commissioner for Economic and Monetary Affairs and the 12-member Eurogroup of finance ministers may also be present (Barber and Haring, 2001). The format of the meetings is open to interpretation; it is unclear the extent to which Issing's advice is followed, though there is a general indication that smaller nations carry less influence than larger ones (Barber and Haring, 2001). The president summarises proceedings and may propose an interest rate change if sufficient support appears to exist; a full consensus is desired but not required before a rate change takes place (Barber and Haring, 2001).

Although there appears to be significant conflict within the ECB, there is no firm evidence of organised factions on the board. Nevertheless, anti-inflationary preferences are notably strong among representatives from France, Germany, Austria, and the Netherlands (Barber and Haring, 2001). Internal conflicts have also been evident — for example, in September 2000 the president did not attend a meeting of the Eurogroup following a public argument (Barber and Haring, 2001). Despite efforts to discourage members from making public comments, in November 2001 the ECB president stated that the press should listen to him rather than other policy makers, a remark directed at Bundesbank president Ernst Welteke (Barber and Haring, 2001).

One of the most problematic aspects of the bank is accountability (Walsh, 2003; Forder, 2002). In general terms, any central bank needs to be held accountable for its actions (Pringle, 2002; Randzio-Plath and Padoa-Schioppa, 2000). For the ECB, there is arguably no direct accountability to the public. A legislative mandate requiring price stability below 2% inflation over the medium term could provide a starting point (Heisenberg, 2003). In the United States, the Federal Reserve is accountable to Congress (Debelle, 1994), but the ECB was created to be an independent entity — a cornerstone learned from the Bundesbank (Randzio-Plath and Padoa-Schioppa, 2000).

The European Parliament might logically serve as the body to which the ECB is accountable, given its direct mandate from citizens. However, the governing council has sole control over monetary tools and cannot take direction from euro area governments. This structure is intended to retain independence and prevent interference with economic decisions — board members are even appointed to non-renewable terms to insulate them from political pressure. The result, however, is a guaranteed independence that has simultaneously created a deficit of accountability.

When this lack of accountability is combined with the absence of published meeting minutes, the result is ongoing market confusion and a lack of confidence. The ECB's governing board is composed of representatives from member-state central banks, each with potentially different economic cultures and approaches, which may dilute the clarity of the Bundesbank model on which the organisation is ostensibly based.

Nevertheless, with the appointment of a new president, increased attention on inflation rates, and more focused targets, there is potential for the bank to reduce uncertainty and increase the clarity needed in the markets. This would help build market confidence and allow the bank to address inflation with less of the volatility created by speculation.

Conclusion

The purpose of this research was to establish whether the ECB could be successful at emulating the strategic model set forth by the German Bundesbank. The discussion focused on the fact that the ECB is facing different problems as it is still in its developmental phases, and sought to determine whether the tools of the Bundesbank could provide support for the ECB in achieving economic stability in the European Monetary Union.

This research has been broad in scope and attention to the structure and formation of both the Bundesbank and the ECB. The development of the central bank was found to be unavoidable. Although the development may not have unfolded exactly as foreseen in the Delors Report, the ECB is fulfilling its intended role as the central bank to a monetary union with a single currency. It is difficult to conceive of any such area functioning without this type of institution, and as a central institution the ECB plays a very important role in economic stability across an area characterised by wide-ranging economic concerns and different growth patterns and cycles.

The research also found that the ECB is now a powerful institution, having absorbed the Bundesbank and having the potential to draw lessons from other central banks such as the Bank of England. A wealth of knowledge and experience could be used to reduce the length and steepness of the learning curve. The composition of the decision-making processes, however, is challenging. Just as with the Bank of England and the Bundesbank, goals are dictated to the ECB: Article 105.1 requires price stability, defined as "a year-on-year increase in consumer prices of below 2%" (ECB, 2004). This is a clear goal, but there are many pressures and the bank's actions indicate that it has not yet settled on a single route in terms of monetary tools.

Reviewing other banks allowed the research to assess whether the ECB could be successful in meeting monetary policy aims for the entire region. The Bank of England historically performed best under pressure — such as during the Napoleonic Wars — managing the economy while trading internationally, investing funds, and providing the government with spending resources. However, with the pressure relieved, the Bank faced a change of focus and a diffusion of objectives, demonstrating that a lack of singular focus can create difficulties.

In all documentation and literature, it is clear that the Bundesbank concentrated on a single goal: price stability through the control and management of the exchange rate and the value of the currency. This had been shaped partly by the difficult years before the bank's creation, when hyperinflation in the 1920s and the subsequent economic and political failures had made currency stability a deep cultural and political imperative (Hetzel, 2002). The politicians were not trusted with monetary policy by the German electorate, whereas in the UK this level of institutional distrust had not developed, as the same economic crisis had not occurred.

The introduction of a new currency between 1924 and 1928 had provided a brief period of stability in Germany, but its failure reinforced distrust in political management of the economy. Monetary policy was political and needed to be separated from politics — with a single goal. This political nature also explains the reluctance of many UK governments to relinquish control over monetary policy. The pattern of interest rates being used as a political tool — with increases resisted ahead of elections — was a cultural reality in the UK that differed sharply from the German experience.

In Germany, following the defeat in World War II, confidence in the currency failed and a barter system resulted. Out of this need for stability emerged the Allied Banking Commission and later the Bundesbank, with a single, clearly dictated goal: exchange rate stability. This has worked well. Where the Bank of England in more recent years has also performed well, it has likewise followed a single goal — controlling inflation — demonstrating a clear pattern: where defined and non-contradictory economic goals are pursued, central banks are likely to be more successful; where numerous or conflicting goals exist, difficulties follow.

There are also commonalities between the independent Bank of England and the Bundesbank. Both feature clearer accountability procedures, publish policy announcements backed by supporting figures, and release minutes of meetings — all of which increase transparency. This level of confidence is of paramount importance. The problem with the ECB is the appearance of two potentially conflicting goals — controlling inflation while also managing the exchange rate — combined with closed-door policy discussions, weak accountability, and public disagreements that undermine confidence (Higginson, 2004; Walsh, 2003).

The development of the ECB indicates that there is a real opportunity to create a bank that can be as successful as the Bundesbank, but the current political climate and the presence of multiple goals have created a leviathan that is not yet meeting that standard. The history of the Bank of England demonstrates that success can be achieved even if not gained immediately, and the Bundesbank demonstrates that where control was contested at the beginning, this can be adapted and changed over time. However, this will take political courage and may be unpopular in the short term.

At the time of this research, there appeared to be a great deal of dissension between the members of the ECB. If the institution is to be successful at emulating the Bundesbank, it must resolve these issues both privately and publicly, since rectifying this situation will increase confidence in the economy and in the institution's capabilities. The conclusion must therefore be that unless change occurs, the bank will have to learn from experience, allowing its different members to discover how and how not to run a central bank. It is only after these lessons are genuinely absorbed — either from direct experience or from a final recognition of the evidence — that the ECB may begin to follow a single, coherent policy, giving itself the environment in which it can succeed and create economic and social well-being for all member-state citizens in the eurozone. Only then will the ECB have truly emulated the success of the Bundesbank.