Introduction

I have been invited to contribute to this conference with a consideration of the long-term prospects of the European Monetary System (EMS). My approach will differ from that of the other studies in this volume: it will take the system as a variable, while they take it as given; it will be non-technical, while they develop their arguments with the help of sophisticated techniques. The reasons why a contribution of this kind was felt necessary are that the system is now sufficiently well established to justify expectations of its having a long life, that the tests it has still to pass may be so demanding as to change its shape, and that the view of a policymaker may be a useful input to an academic debate.

Let me start by explaining the meaning I shall give to three concepts that are central to my argument: ‘long term’, ‘performance’, and ‘evolution’ of the system.

What do we mean by iong term'? Rinaldo Ossola used to say that the time horizon of a central banker is about three months. Between this extreme and Keynes's definition in terms of a lifetime, a measure of several years can be taken as a fair compromise. However, a definition based exclusively on the time dimension is too restrictive. It is more helpful to base it on the well-known distinction that the German language makes between Prozesspolitik and Ordnungspolitik: the former operates within existing institutions, instruments and markets; the latter acts on the existing framework.