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. Last Updated: 07/27/2016

European Bank Plan Unveiled

FRANKFURT -- Europe's Monetary Institute on Friday unveiled its blueprint for a fiercely anti-inflationary European central bank of the future that will ensure the planned single currency is every bit as stable as the German mark.


In a long-awaited report, the EMI presented a comprehensive monetary policy tool kit for the new central bank, endowing it with the policy strengths of the powerful German Bundesbank, which already dictates the level of interest rates in Europe.


The European Central Bank, like the Bundesbank, will have price stability as its ultimate goal when it takes over responsibility for monetary policy once the single currency is launched in 1999.


Under the EMI's game plan for its successor -- which has to be approved by the ECB next year -- the new bank will conduct policy mainly through open market operations, with two further interest rates setting upper and lower limits for short-term rates.


Its main open market tool is a mirror of the Bundesbank's securities repurchase tenders.


EMI chief Alexandre Lamfalussy, mindful that many smaller European countries are nervous of being trampled over by Europe's largest economy, went out of his way to stress that this was not simply a copy of the German central bank.


Although it gave very precise details in some areas, the EMI report left several key decisions -- including minimum reserves and access to transfer payments system -- up to the ECB itself after it is set up in the middle of next year.


Analysts generally welcomed the plans, saying they created the basis for sound monetary policy. But they warned that it was essential that the central bank remains independent of politicians if its policies were to prove effective.