Preparing the ECB for Enlargement (CEPR Policy Paper #6)

Overview

As the European Monetary Union begins to add member nations, central bank governors of each new member will become entitled to a vote on the European Central Bank's (ECB) key decisionmaking body, the Governing Council. Euroland's interest-setting body will thus expand from its current 18 members to 30 or more. The Bank's decisionmaking structure has worked well so far, having proved its mettle in a series of challenges —the Russian and LTCM crises, the oil and food price hikes, the stock market tech-wreck and the...

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Overview

As the European Monetary Union begins to add member nations, central bank governors of each new member will become entitled to a vote on the European Central Bank's (ECB) key decisionmaking body, the Governing Council. Euroland's interest-setting body will thus expand from its current 18 members to 30 or more. The Bank's decisionmaking structure has worked well so far, having proved its mettle in a series of challenges —the Russian and LTCM crises, the oil and food price hikes, the stock market tech-wreck and the U.S. economic slowdown. But is the ECB ready for the challenge of enlargement?

This report argues that the substantial increase of voters in the Governing Council will adversely affect the efficiency of the Bank's decisionmaking structure. The authors believe that this potential enlargement is a matter of urgent concern, and challenge the ECB and/or the European Commission to formulate a response to this challenge.

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Product Details

  • ISBN-13: 9781898128632
  • Publisher: Centre for Economic Policy Research
  • Publication date: 2/1/2002
  • Pages: 45
  • Product dimensions: 8.50 (w) x 11.02 (h) x 0.14 (d)

Meet the Author

Richard Baldwin is professor of International Economics at the Graduate Institute, Geneva and policy director of CEPR. Francesco Giavazzi is a professor of economics at Università Bocconi, Milano, research associate of the National Bureau of Economic Research (NBER), and research fellow of the Centre for Economic Policy Research (CEPR). Erik Berglöf is the Chief Economist and Special Adviser to the President at the European Bank for Reconstruction and Development (EBRD). Mika Widgrén was Professor of Economics at the Turku School of Economics, Finland.

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Table of Contents

Executive Summary
1 Introduction
1.1 The structure of our argument
2 ECB enlargement: As early as June 2005?
2.1 Maastricht criteria and procedures
3 The new ECB members will be quite different, and this matters
4 Decision-making in an enlarged and unreformed Governing Council
4.1 Current voting rules and shadow voting
4.2 The Executive Board's power to lead
4.3 A hypothetical alliance in an enlarged Governing Council
4.4 Status quo bias in an enlarged and unreformed ECB
5 Reform options: New voting rules for the Governing Council
5.1 The 'ideal' central bank
5.2 Three reform options
6 Problems with representation and rotation
6.1 Accountability
6.2 Political acceptability
6.3 Under rotation or representation the Council might fail to make the appropriate monetary policy decisions
7 A Recommendation
7.1 Analogy with competition policy
8 Modalities: The Commission's opportunity and duty
8.1 Article 5
8.2 Who moves first?
8.3 Postponing is not an option
8.4 The responsibility of the Commission
8.5 Timing: reform before enlargement
App Article 5 of the Nice Treaty and relevant articles of the ECB Statutes
References
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