Organizing foreign exchange intervention in the euro area

Abstract:

Scholarship on European integration has debated the external character of the monetary union extensively. This article examines the establishment of the institutional arrangements for foreign exchange intervention and the policy-making surrounding the market operations of autumn 2000 – the only case to date of euro area intervention in currency markets. Drawing on elite interviews of officials in European institutions and international organizations, among other sources, it specifies the division of labour between the European Central Bank, Eurogroup and other European actors. The article concludes that (1) the inter-institutional understanding within the euro area gives substantial but not complete latitude to the ECB, (2) the understanding is susceptible to renegotiation over time and (3) economic divergence within the euro area could threaten the ability of the monetary union to act coherently externally.