Interdependence, that is, outcomes depending on what is done by more than one actor, is a fact of life for central banks, reflecting domestic and international pressures, both political and economic. National economies have become increasingly internationalized through trade in goods and services and in currencies too. In consequence, the economies of large as well as small countries are now shaped by actions abroad as well as by decisions at home. While interdependence is a fact of life, what governments do about it depends on political choices, and countries differ in their commitment to a national currency. Their choices are to: maintain a degree of institutional independence with a national currency subject to the vicissitudes of the international economy; join a currency union, as twelve countries of the European Union have done; or contemplate doing the latter while still pursuing the former policy, as Britain and Sweden are currently doing.

Many studies of privatisation and liberalisation in utility industries stress the importance of national institutions for reform. However, powerful transnational forces and cross-national policy convergence in telecommunications have led to a questioning of the role of institutions. Single sector studies are limited in their ability to assess the relative influence of sector-specific technical and economic forces in the policy process. This article presents a cross-sectoral and cross-national analysis of privatisation and liberalisation in telecommunications and electricity in Germany, France and Britain in terms of national institutions, techno-economic forces and ideas. Although institutions shape shorter-term policy responses and the emerging regulatory regimes, in the longer term their role is limited to the pace and timing of policy change rather than its impetus and direction. To understand the latter it is necessary to investigate sources of the key ideas which led to reform. The ideas were not embedded within institutions but originated from outside as a response of interests to techno-economic forces and from groups ideologically predisposed to favouring neo-liberal ideas.

Regulatory reform is often seen as a road paved by good intentions, but leading to ‘policy hell’. The example of the railways seems to represent a prime example of regulatory failure, not only in Britain but also in Germany. This article analyses the notion of ‘regulatory failure’ in the railway domain by taking an analytical and a comparative perspective. First, it introduces a variety of explanations as to why regulation can go wrong. Second, it considers the design and the consequent evolution of the regulatory regimes for the railways in Britain and Germany since the early 1990s. Both countries offer similar life-cycles of regulatory reform, however differing in design, perceived failures and advocated solutions. Finally, it discusses how the literature on regulatory failure contributes to the understanding of British and German railway regulation and argues that any regulatory regime is not only characterised by a conflict of interests, but also by conflicts of standards of appropriateness that lead to inherent tension and potential causes for failure.

This paper approaches the study of national adaptation to the European Union as a process involving institutional constraints and actors' interactions across levels of decision-making. The argument is that domestic adaptation to the EU is a matter of the ability and willingness to conduct integrative political bargaining rather than a matter of matching institutional structures. The paper provides an empirical case study of the Norwegian adaptation to EU energy sector legislation, the Internal Energy Market (IEM). The various outcomes of different directives in this sector indicate that the structural feature of a particular state or policy sector is inadequate to explain fully variations in national and domestic adaptation to EU legislation. The paper focuses on characteristics of the process of adaptation itself, such as affectedness, policy similarities, bargaining opportunities, and legal proceedings.

Examining the economic costs and benefits of currency union has value in itself and, insofar as policymakers take non-economic costs into account, doing so helps identify costs they are prepared to accept in order to achieve political objectives. Questions of policy competence have become more complex, however, since Mundell's seminal article of 1961. Krugman provides a simple framework for relating trade integration to currency area membership. Collectively, articles in this issue of the Journal of Public Policy support the conclusion that can also be drawn from reviewing the economic literature on currency union: the costs and benefits of currency union are contingent on many circumstances with the likelihood of contextual and temporal effects.

This study explores variations in macroeconomic policy and performance in contemporary Latin America on the basis of a theoretical model that emphasizes the complex interplay of partisan control of the government, labor strength, and electoral competition. The plausibility of the model is assessed on the basis of a cross-national time series analysis of economic policy choice and performance in nineteen nations. Contrary to the view that internationalization of the world economy leaves limited room for domestic actors and institutions to influence public policy, the findings suggest that macroeconomic performance in contemporary Latin America reflects eminently political processes of policy formation shaped by partisanship, electoral competition, and union strength. The study thereby points to the broader relevance of the literature on the political economy of the advanced industrial democracies, which has emphasized the impact of domestic political institutions, particularly political parties and trade unions, on policy choice and performance.

This paper examines the labour standard-setting capacities of the EU and NAFTA. The social dimension to the EU is depicted as being organised along the principles of deliberative supranationalism. The North American Agreement on Labour Cooperation (NAALC), sometimes referred to as the Labour Side Accord, which is the labour standard-setting arrangement for NAFTA, is regarded as a tri-national institutional arrangement which grafts formal international procedures onto domestic labour market regimes. The paper seeks to describe and explain how the different types of activities in which the two social dimensions are engaged can be traced back to their overall institutional design. The paper argues that EU social policy is the stronger of the two arrangements and that NAALC has significant shortcomings. Yet it also argues that NAALC holds out interesting lessons for other regional trading blocs and other global experiments in labour market standard setting as its decentralised and `horizontal' character is more in keeping with the broad institutional design of these arrangements.

Restrictive policies aimed at reducing the likelihood of bank failures during recessions tend to increase the probability of a credit crunch. We examine whether this policy-dilemma is empirically observable, and whether policy-makers concentrate more on preventing bank failures or avoiding a credit crunch. We find that although capital-asset ratios in the total population of US banks in the 1990s are pro-cyclical, the most vulnerable banks (substantially undercapitalized ones) tend to increase their capital-asset ratios during recessions. These findings suggest that policy-makers are indeed experiencing a dilemma, and that they try to balance the relative probabilities of the two evils: they force the weakest banks to improve their capital-asset ratios while mitigating the risk of a credit crunch by accepting a reduction in the capital-asset ratios of less vulnerable banks.

The paper examines the range of currency and exchange rate regimes choices facing small countries living next to large currency blocs, such as the euro area and the United States. It draws on Canada's successful experience in the 1990s with a flexible exchange rate and explicit inflation targets to argue that such a monetary rule may be the appropriate policy alternative for small countries in this situation such as the United Kingdom or Norway, that are unwilling to surrender their national currency or their monetary independence for economic or political reasons. Because the Canadian economy is more dependent on the production of natural resource products than the economy of its major trading partner, the United States, Canada's flexible exchange rate plays a valuable role in helping to stabilise the Canadian economy in the face of global shocks to natural resource prices.

In Germany, where manufacturing has traditionally dominated the economy, this article examines the opening up of telecommunications, insurance and to some extent postal services to international competition. It highlights two issues for policymakers to consider when they engage in service sector reforms. First, it is difficult to measure trade in services. However, this problem can be addressed by supplementing price analyses with proxy indicators of market access such as market share, availability of licenses, etc. The use of such indicators promotes transparency and facilitates negotiations to reform services. Secondly, the article argues that lobbying by producers and users of services cannot fully explain reform nor does EU membership significantly constrain reluctant member states. A major key to reform was the ability of the government to re-interpret services as regular tradable products combined with new regulation to shelter exposed groups such as consumers and workers against harm. The implication is that domestic governments have a key role to play in “selling” services reform to the electorate.

The monetary implications arising from EMU for Swiss monetary policy show up primarily in the exchange rate. As of yet, fluctuations in the Swiss franc against the euro have been surprisingly moderate. The Swiss franc has thus tracked the euro's decline against the US dollar without experiencing strong inflationary pressures and a convergence in the interest-rate differential: a paradoxical result for a small open economy. This paper examines critically whether the recent record reveals information about a change in SNB monetary policy. It also attempts to shed light on the SNB's ability to implement an independent monetary policy with the new landscape defined by EMU. Four hypotheses of euro tracking are considered.

This paper seeks to explain why Finland, which is further from the main population and productive centres of Europe and arguably more different and more prone to asymmetric shocks than some countries that have chosen to stay out of Stage 3 of EMU, chose to participate. We argue that economically relatively marginal issues affected the choice. How the decision-making process is conducted can be as important as the balance of information on which the decision is based. We also use evidence after the event on how the economy reacts to show that some of the problems hypothesised beforehand have turned out rather more favourably than expected. In particular Finland has experienced a substantial positive asymmetric shock in the ICT sector where membership of EMU has had a very clear positive effect on the impact on the economy. Lastly we offer some limited evidence that membership of EMU itself forces some of the changes to institutions and behaviour that are required to cope with the new pressures.

Inflation targeting is the monetary strategy of all EU member states; whether in the euro area, the two euro-outs, Sweden and the United Kingdom. The latter are now faced with two alternatives to achieve price stability: either remain outside the euro area or join it as full-fledged members. This paper examines this policy choice starting from the views of Knut Wicksell, who considered it in his 1920s analysis of an international monetary system based on price level targeting. Price stability could be achieved either within every country by maintaining flexible exchange rates or jointly on a global scale through a system of fixed exchange rates, that is through a monetary union. To him this was a choice between two ‘evils’: fluctuating price levels in the member states of a global monetary union while the average price level is maintained constant versus fluctuating exchange rates in the absence of a monetary union. To Wicksell, the choice of the proper route towards price stability was less complicated than today because he analysed it solely in monetary terms. The current choice for Sweden and the United Kingdom involves other crucial dimensions, such as the existence of nominal rigidities, and the politics of domestically issued money. Political aspects concerning the euro will be the ultimate determinants of the future monetary path for both countries.

The euro is relevant for decisions that the Polish Central Bank takes about its general rules of monetary policy, goals and decision structures, but it is not, or at least not yet, relevant to the everyday processes of controlling money supply and interest rates. Fighting inflation was a primary target of the central bank prior to applying for entry to the European Union and maintaining a satisfactory external account. However, with the growing openness of the economy, eclectic monetary policy showed a high degree of internal inconsistency. With greater autonomy under a new constitution, the Central Bank adopted direct inflation targeting. The adoption of this measure is consistent with emerging EU policy but was driven by specifically Polish concerns.

The choice facing British government about maintaining the status quo for sterling or joining the euro is a choice between long-term policy regimes. Short-term considerations such as the relative position of business cycles or the current level of the sterling-euro exchange rate have a bearing on the adjustment costs and the timing of entry. The article therefore examines the EMU framework versus the British framework for monetary policy; the performance of economic policy in Britain and in Euroland, and especially Germany as Euroland's main precursor; the relevance to the adjustment costs of membership to the Maastricht criteria and the Chancellor of the Exchequer's five economic tests for joining the euro; and whether or not Britain can qualify for joining EMU. The analysis is broadened to include supporting policies for monetary policy, especially fiscal, labour market and other structural policies where relevant.