The support of general economic policies

2.2.2 The support of general economic policies

By fulfilling its clearly defined mandate to maintain price stability in the euro area, the ECB supports the general economic policies in the Community “with a view to contributing to the achievement of the objectives of the Community as laid down in Article 2”. Indeed, as shown above, the best contribution which the ECB can make to promoting, among other things, “sustainable and non- inflationary growth” and a “high level of employment”, as referred to in Article

2 of the EC Treaty, is to pursue a monetary policy aimed at price stability. In this way, a stability-oriented monetary policy creates a stable environment for other policies to be carried out as effectively as possible.

By contrast, monetary policy has very limited scope to exert a lasting influence on real variables through other channels; in the long run, real income is essentially determined by supply-side factors (e.g. technology, population growth, the flexibility of markets and the efficiency of the institutional framework of the economy). It is therefore the task of fiscal and structural policies – but also of those involved in the wage-bargaining process – to enhance the growth potential of the economy.

Accordingly, the mandate to support the general economic policies in the euro area does not give the ECB direct responsibility for any additional objectives other than price stability. Instead, the Treaty requires the ECB to take account of the other Community objectives in pursuing its primary objective. In particular, given that monetary policy can affect real activity in the shorter term, the ECB typically should avoid generating excessive fluctuations in output and employment on condition that this does not jeopardise its pursuit of its primary objective.

Likewise, the mandate to support the general economic policies in the Community does not require the ECB to coordinate its policy ex ante with the economic policies in the Community. It is, however, part of the rationale behind the dialogue between the ECB and the economic policy-makers at the Community level (see Section 4.3).

2 . 2 . 3 T h e p r i n c i p l e o f a n o p e n m a r ke t e c o n o m y

The EC Treaty also binds the Eurosystem to the principle of an open market economy with free competition. The Eurosystem complies with this principle in several ways. By maintaining price stability, the ECB contributes to the proper operation of the price mechanism, which is an essential feature of a well- functioning market economy and which favours an efficient allocation of resources. The monetary policy instruments of the Eurosystem are based on market mechanisms, and credit institutions are given equal access to the Eurosystem facilities.

2 . 3 A S S I G N M E N T O F TA S K S B Y T H E T R E AT Y

The Treaty entrusts the ESCB with the task of performing the central bank function for the Community. Given the fact that some EU Member States do not participate in EMU, the terms “ESCB” and “Community” are to be read as “Eurosystem” and “euro area” respectively.