The Treaty of Maastricht set strict convergence parameters for countries intending to join the Economic and Monetary Union. The calendar for monetary union was fixed: a first stage of economic and institutional convergence; a second stage of regulatory and procedural harmonization to prepare for the implementation of a common monetary policy, envisaging the creation of the European Monetary Institute, the precursor to the European Central Bank, in 1994; and a third stage, beginning in 1999, for the actual launch of the single currency.
In the summer of 1992 the different economic policy stances of the United States and Germany, coupled with uncertainty regarding ratification of the Treaty of Maastricht, triggered a foreign exchange crisis that hit many countries. The lira was devalued by around 20 per cent.
In Italy the crisis prompted a vigorous reaction. First the public finances were put in order, by way of substantial cuts in expenditure and above all increases in revenue. In the summer of 1994 a monetary tightening inaugurated a period of rigour. In 1995, a year that saw another foreign exchange crisis, the discount rate reached 9 per cent. The resolute action of the Bank of Italy in these years helped to reduce inflation expectations. Price rises having been curbed, in 1996 monetary conditions were eased. Renewed confidence, both domestically and internationally, permitted a reduction in long-term interest rates and led to a drastic cut in interest payments on the public debt; so monetary policy contributed significantly to public financial adjustment. On the strength of these efforts, Italy was in the first wave of countries to adopt the single European currency.
During the 1990s there was also a process of institutional convergence. In line with the requirements of the Treaty of Maastricht, the independence of central banks was reinforced. In Italy this was done in a series of steps. At the beginning of 1992 the Bank of Italy was given fully independent power to set official interest rates. In the autumn a law prohibited the State from financing itself by current account overdrafts with the Bank. The Bank of Italy has not participated in government securities auctions since 1994.
The transposition of the Second Banking Directive (1992) into Italian law set the fundamental rules for the financial sector. Banking specialization, which had characterized the credit system put together in 1936, was abolished and universal banks became possible. The series of measures taken over the years, such as those to encourage savers shift to investment in shares, supplementary pension plans and managed assets, substantially reformed the regulatory framework for banking and finance. All this was codified in the Consolidated Law on Banking of 1993 (Testo unico bancario) and the Consolidated Law on Finance of 1998 (Testo unico dell'intermediazione finanziaria). The 1993 law also made the Bank of Italy responsible for the smooth running of the payment system.
Law 262 of 28 December 2005 on the protection of savings and the regulation of financial markets also modified the organization and institutional structure of the Bank of Italy. Governor Antonio Fazio resigned in the same month.
On 31 May 2006 Mario Draghi, who had been appointed Governor on 29 December 2005, presented his first Concluding Remarks to the General Meeting of Shareholders. The Governor noted the complexity of the field in which every modern central bank must operate. The field of operation has become even more vast for the central banks of the Eurosystem. It ranges from setting common monetary policy to payment system operations. Decisions and institutional arrangements must be adapted to the needs of an advanced, but diversified, economic area. The Bank of Italy also moves in a boader international context embracing supervisory guidelines, economic analysis and initiatives to safeguard financial stability.