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Analysis

Rotation under scrutiny

by Ernst Welteke

Rotation under scrutiny

On 10 March, at the next monetary policy-making meeting of the European Central Bank’s governing council, Jens Weidmann, president of the Bundesbank, will not have a vote. This is the result of an elaborate change in the ECB’s voting procedures, under a decision in February 2003 (when I was a member of the ECB council) which took effect last year.

These circumstances are unfortunate, at a meeting that is widely expected to take somewhat controversial (in Germany at least) decisions on further monetary easing. Germany and its central bank are the biggest shareholder and the largest creditor in the euro system. Weidmann’s temporary disenfranchisement (for just one month) will probably not make much difference to the outcome, since other governing council members who hold contrasting monetary policy positions will also not have a vote. However, his absence from voting could have psychological consequences.

Weidmann’s move from the voting lists reflects a ‘rotation system’ decided by the governing council 13 years ago. The decision, subsequently endorsed by the European Council, was designed to allow the ECB ‘to take decisions in a timely and effective manner... in an enlarged euro area’ by assuring that the total number of governors authorised to vote would not exceed 15.

As part of the governing council who took the decision, I must say that my scepticism was justified. Wim Duisenberg, the ECB president at the time, pressed me into setting aside my objections and voting for the motion. With the benefit of hindsight I can say that wider public discussion would have been helpful.

It is difficult to find a convincing argument in favour. All national central bank governors continue to participate in the governing council’s discussions. So limiting voting rights neither increases nor safeguards the efficiency of its deliberations, nor mitigates their length.

The change in the voting procedures affects two ECB guiding principles: first, ‘one member – one vote’, second, that the governors are appointed in their personal capacity as experts and not as representatives of their member states. The latter is the basis for the former.

The power of the executive board, with constant voting rights, is strengthened. The system increases the voting power of the governors from the five largest economies over that of the smaller ones. Further adding to confusion, the system changes votes on a monthly basis, whereas the monetary policy meetings now take place every six weeks. All this raises the complexity of communicating the ECB’s monetary policy decisions, at a time when these matters are subject to conflicting opinions.

Ernst Welteke was President, Deutsche Bundesbank, between 1999 and 2004.

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