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Financial Times London
Root of central banks lack of decisiveness
Christopher Huhne is too optimistic when he expects that publication of ECB minutes and details of votes will improve ECB predictability ("Avoiding interest rate surprises", april 10). The problem behind ECB lack of predictability is more fundamental.
The composition of the Governing Council with a small Executive Board breeds a lack of decisiveness. The choice of the Board for a concensus approach in which no votes are taken can only be understood from its own relative weakness. The minority Board feels it lacks the power to set the line for the national Bank Governors in the Council. As President Duisenberg revealed in a press conference on 4 november 1999, interest rate moves do not even start with a proposal from the Board. Any member of teh ECB Council can put a proposal, and after a full round of speakers the President tries to sum up a concensus view. When a majority is in favour of an interest rate cut, as the market understood before last meeting from speeches from Board members and Banque de France President Trichet, but a few members are outspokenly against, no cut is agreed.
Is taking a vote, in a decentralised setting with a weak central Board, a better solution then striving for concensus? I strongly doubt it. It might make the ECB even more unpredictable. What need to be changed is the structure of the Governing Council, giving the Board a (near) majority position. This would require a rotation system for the Governers of the national central banks, which will be necessary with enlargement anyway. The question is however, whether this is not too far away. A more predictable ECB might require a faster reform.
Former MEP (1984-1999). Now runs an economic consultancy (Metten EU Consulting BV)