Pasbaxo,

If I understand correctly, you suggest that NCB’s should be controlled by their respective governments, instead of reporting to the ECB. While I do not really see any benefits compared to the current system, absolute control of the NCB by the national government is not advisable; governments are looking for economic growth. If they have control over the NCB, and therefore over monetary policy, the government will pressure the NCB to keep interest rates low, lower than would be optimally given inflation rates. Now, the ECB is the one governing interest rates, though if all NCB’s were controlled by their respective governments, they would be instructed to vote for low interest rates, and therefore the ECB meeting would result in low interest rates. Therefore, independence from the fiscal policy authority is a necessary component for a well-functioning NCB.

Dear Henk,

Thanks for your comment. Indeed, we have not covered the banking system. This is because the European member states have been moving towards a banking union, and therefore the question whether banking should be supervised by a supranational government is less interesting. Also, banking supervision is carried out by the ECB and national banks, and this is therefore not something a classic, cabinet-like government would be carrying out, and is therefore not in the scope of our papar.

I have found your paper a great read. It provides a good overview of most core problems in the european crisis. It’s too bad that you do not touch upon the role of the banks, though I guess this is not something which falls within the scope of the paper. Have you thought about this?