European Central Bank decision-making – Reform, Old Commitments and New Realities

• Anda Patarau ^[1]
  1. [1] Cambridge University
• Localización: Notes internacionals CIDOB, ISSN-e 2013-4428, Nº. 110, 2015, págs. 1-5
• Idioma: inglés
• Enlaces
  • Texto completo
• Resumen

  • The new model tries to simplify governance, reinforces the ECB’s Executive Board and increases the representation of large countries with respect to small, all of which can be considered a progress. Yet this fundamentally federal model opts for a rotation mechanism based on economic and financial criteria rather than on economic and demographic.

    In some ways, this readymade, still untested federal-like model seems to serve well a post-crisis EU facing euro-scepticism, austerity, democratic deficit and adversity to supranational superpowers. In other ways this twelve year-old creation lags behind crucial events the EU has experienced in the meantime – a big-bang enlargement to 28 members and the most severe crisis since the great depression.

    Just like the former Bundensbank model, territories are represented in the ECB’s decision-making process based on a political criterion, since central banks Governors participate as representatives of the respective member states (i.e. political entities).

    Some argue that the new model risks renationalizing monetary policy but this interpretation is not clear-cut. Recent studies show that scenarios in which individual members of the Governing Council would follow national objectives and bargain over interest-rate setting according to GDP weights perform better than scenarios in which all Governing Council members pursue euro area-wide objectives.

    The size of the monetary and financial institutions balance sheets is an irrelevant and distortive criterion; other relevant dimensions include the sector’s risk, diversity, exposure, domestic vs. foreign entities, and the size of shadow banking.

    An alternative weighing system based on GDP and population would be superior. Using population would reflect the wider purpose of price stability, the benefits of which accrue to all citizens and the society as a whole, and not only to corporate and financial entities.

    As the reform of the ECB’s voting system has been long agreed upon but its implementation delayed, there are doubts about the degree of novelty that it will bring to monetary policy. But an old commitment, like a vintage garment, can return to fashion and what matters for policy, like for vogue, is confidence.