List of Abbreviations
1. Legal Basis for the accession to the EMU
1.1 Maastricht Treaty
1.2 Scenario for the adoption of the euro
1.3 Institutional framework of the ECB after the EMU enlargement
1.3.1 Consequences of the enlargement without the reform of the Governing council
1.3.2 Models of the Governing Council Reform
1.3.3 Proposals of the ECB and the DWI
2. Optimal Currency Theory and Eastern Enlargement of the EMU
2.1 Benefits of monetary union for new members
2.2 Costs of monetary union for new members
2.3 Benefits and Costs and openness of economy
2.4 Balancing of Costs and Benefits
3. Nominal and Real Convergence
3.1 Maastricht criteria
3.1.1 Inflation criterion
3.1.2 Interest rate criterion
3.1.3 Public debt and budget balance criterion
3.1.4 Exchange rate criterion
3.2 Real convergence
3.2.1 GDP convergence
3.2.2 Institutional convergence
3.3 Balassa-Samuelson effect
3.3.1 Estimated size of the B-S effect in CEECs
3.3.2 Implications of the B-S effect accession countries
3.3.3 Implication of the B-S effect for monetary policy of the ECB
3.4 Are the Maastricht criteria contradictory to the catching up process?
3.5 Demand and Supply shock’s asymmetries
4. Exchange rate strategies prior to the EMU membership
4.1 Current exchange rate regimes
4.2 Which exchange rate policy is desirable in the run-up to the entry?
4.3 Euro conversion rate
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 Bolle, Michael; Fahrholz, Christian; Jacobsen, Hanns-D.; Meyer, Thomas; `` New Risks Ahead: The Eastward Enlargement of the Eurozone´´; Jean Monner Centre of Excellence, Working paper No. 1, August 2001; www.ezoneplus.org
 Boone, Laurence; Maurel,Mathilde; ``Economic Convergence of the CEECs with the EU´´; CEPR Discussion Paper, n° 2018., 1998
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 Buiter, Willem; Grafe, Clemens; ``Anchor, float or abandon ship: exchange rate regimes for the accession countries´´, European Investment Bank Papers, 7(2), 51.71., 2002
 Ca’Zorzi, Michele; De Santis, Roberto; ``The admission of accession countries to an enlarged monetary union: A tentative Assessment``; ECB-Working paper No.216, February 2003
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 De Broeck, Mark.;Sløk, Torsten;``Interpreting real exchange rate movements in transition countries´´,IMF; Working Paper 01/56, 2001
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 Jacobson, Tor; Jansson, Per; Vredin, Anders; Warne, Anders; A Varmodel for monetary policy in a small open economy, Journal of Applied Econometrics, 2001, pages 487-520, http://www.riksbank.com/upload/991/WP_77.pdf
 Kenen, Peter; ``The theory of optimum currency areas: an eclectic view´´; In: R. A. Mundell; Swoboda ,A. K., Monetary problems of the international economy;University of Chicago Press, Chicago,1969
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 Lommatzsch, Kirsten; Tober, Silke; ``Voting rules in the Governing Council Following Enlargement of the Euro Area´´; DIW Berlin, Germany; Economic Bulletin 3/2003
 Maier, Philipp; Hendrikx, Maarten; ``Implications of enlargement for European monetary policy: A political economy view´´; De Nederlandsche Bank, Economics Working Paper, 2002
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 Rother, P.; ``The impact of productivity differentials on inflation and the real exchange rate: an estimation of the Balassa-Samuelson effect in Slovenia´´; Republic of Slovenia: Selected issues, IMF Staff Country Report no. 00/56; 2000
 Schröder Ulrich, Working paper - Exchange-rate policy prior to EMU Membership, Deutsche Bank Research, EU Monitor, 04/2003
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 Weimann, Marco; ``OCA theory and EMU Eastern enlargement - An empirical application -´´; Dresden University of Technology, Deutsche Bank Research, Working Paper Series, April 2003
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List of abbreviations
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After a decade of transition from communist regime with centrally planned economic system to democratic society with market economy and after several years of negotiations on the European Union membership, ten candidate countries from Central and Eastern Europe signed the accession treaties at summit in Athen in April 2003. If they conduct public referenda successfully and the present members states complete the ratification, they will become members states in May 2004. The membership in the European Union implies the prospect of eventual membership in the Economic and Monetary Union. The consequent question is: when exactly should they join? According to the Maastricht Treaty, in order to become members of monetary union, new members have to fulfil the convergence criteria. As academic and policy discussions show, from the perspective of monetary policy and economic reasoning, this question, so far, has no clear answer.
Politically, the majority of new members already expressed the intention to fulfil the Maastricht criteria as soon as possible and to join between 2006 and 2008. The officials of the European Union and the European Central Bank prefer a later entry date or tend to be neutral on the issue. Further popular opinion recommends waiting until the euro area consolidates its own monetary policy mechanism.
Among economists, the timing of the eastern enlargement of monetary union is a controversial issue as well. Some argue the nominal convergence set by the Maastricht Treaty to be far from sufficient to form a monetary union with less developed economies. As long as the real convergence in terms of prosperity, functioning institutions or reaction of economy to economic shocks, is not achieved, a common monetary policy stays undesirable. Opposition to these arguments points out that the inclusion of peripheral members of the European Union with characteristic similar to new members, so far, had no negative effects for those countries or for the monetary union.
Others oppose the eager ambition of an early accession to the euro area, because economies of candidate countries members need a different monetary policy, while catching-up the present members. They stress some of the Maastricht criteria to be contradictory to the catching-up process and advise to accept the higher inflation rates leading to real appreciation of exchange rates. The real appreciation is covered by strong productivity growths, therefore accession countries would be better off waiting until most of the convergence process is over. On the other hand, some supporters of early currency unification believe the costs of relinquishing important instrument of economic policy to be outweighed significantly by the benefits in form of lower transactions costs or interest rates.
This thesis attempts to assess the optimality of monetary union between candidate countries from Central and Eastern Europe and present members of the euro area. I define all pros and cons related to eastern enlargement of monetary union and evaluate legal, economic and institutional consequences for aspirants as well as for the euro area induced by single monetary policy. Ultimately, I will try to answer the above-mentioned question.
The first chapter describes the legal requirements for membership in the monetary union and investigates the admission procedure. Why is the reform of decision-making structure inside the European Central Bank necessary, how should the voting rules inside the Governing council be reorganized, these questions I explore here as well.
The costs and benefits of a monetary union relevant for candidate countries are defined in the second chapter. By analysing several indicators measuring trade integration, real exchange rate trends or relative size and openness of the economy, I analyse the optimality of common monetary policy for candidate countries.
The objective of the third chapter is to analyse the nominal and real convergence process in candidate countries. I focus on how candidate countries meet the Maastricht criteria and how different are growth paths and disparities in quality of institutions between aspirants and the euro area. By using the Balassa-Samuelson framework, I estimate what consequences a monetary union between countries with different growth and inflation rates would have on the accession countries as well as the euro area. This chapter also provides analysis of demand and supply shocks asymmetry by analysing the business cycles similarities.
Finally, the concluding chapter examines past and present exchange regimes of candidate countries and attempts to find the appropriate exchange rate strategies prior to accession to monetary union.
1. Legal basis for the accession to the
According to the accession treaties signed in Athen in April 2003, the ten Central and Eastern European Countries1 are supposed to join the European Union in the very near future, in May 2004 (2007 for Bulgaria and Romania). The EU admission requires candidate countries to have achieved ``the Stability of institutions guaranteeing democracy, the rule of law, human rights, and respect for and protection of minorities; the existence of a functioning market economy, as well as the capacity to cope with competitive pressure and market forces within the Union; the ability to take on obligations of membership, including adherence to the aims of political, economic, and monetary union.´´2 Thus, the participation in EMU is a must3 for the new members. In signing up to the accession treaty they accepted the goal of monetary union as part of the acquis communautaire. New members have no option whether to entry EMU or not, unlike Great Britain and Denmark which are granted an „opt-out“ clause. 4
1. 1 Maastricht Treaty
In order to become members of EMU, countries have to fulfil the convergence criteria laid down in the Maastricht Treaty5.
- Inflation should be low, within 1.5% of the average inflation rate of the three countries with the lowest rates over the past two years;
- Long-term interest rates must be within 2% of the three l owest interest rates in EU;
- Exchange rates also have to be stable, within the 15%6 ERM bands for at least two years;
- Budget deficit and public debt should not be higher than 3% and 60% of GDP respectively, and declining for the latter.
The member states not fulfilling these criteria set in Article 122 of the Treaty establishing the European Community (EC Treaty), will be referred to as ``Member States with derogation´´.7 The accession of new member states to the euro area will take place automatically when the convergence criteria are met. The EMU admission agenda consists of four steps:
- prior to accession no formal restriction on the choice of the exchange rate regime;
- upon accession, new Member states must adopt an exchange rate policy as a matter of common interest8 (Article 124);
-after accession, although not necessarily immediately, join the EMR II;
-after application of the procedure in Article 121 (the convergence test), the adoption of the rate at which the euro will be substituted for the currency of the Member State and start preparations to introduce the euro.
The convergence test procedure
New members, that want to join EMU, have to meet the convergence criteria (to pass the convergence test), as well as the initial members of EMU, and later Greece. The point of the convergence test is to prove that the country is fit to participate in the monetary union, i.e. that it can sustainably ensure price stability, limit and manage its government debt without altering the exchange rate.
Article 121 and 122 of the EC Treaty provide the legal basis for the convergence test. According to them, the Commission and the ECB shall report to the Council on the progress made in the fulfilment by the Member States of their obligations regarding the achievement of economic and monetary union. These reports shall include an examination of the compatibility between each Member State's national legislation, including the statutes of its national central bank9, and Articles 10810 of the EC Treaty and the Statute of the ESCB. The reports shall also examine the achievement of a high degree of sustainable convergence by reference to the fulfilment of the convergence criteria.
On the basis of these reports, the Council, acting by a qualified majority on a recommendation of the Commission, shall assess, whether the member state fulfils the necessary conditions for the adoption of a single currency. Subsequently, recommend its findings to the Council, meeting in the composition of the Heads of State or Government. The European Parliament shall be consulted and forward its opinion to the Council.
Taking due account of the reports, the opinion of the European Parliament, and after discussion in the European Council in the composition of the Heads of State or Government, the Economic and Financial Affairs Council, shall decide, whether the member state fulfils the necessary conditions for the adoption of single currency. If so, it shall take decision on acceptance into EMU. This means, it shall set the date for the accession of member state to EMU and adopt the rate at which the euro will be substituted for the currency of the Member State.
According to Article 122, EC Treaty, the Commission and the ECB shall report to the Council in accordance with this procedure at least once every two years, or at the request of a Member State with derogation.
1.2 Scenario for the adoption of the euro
In the past, most, but not all, CEECs wanted to join EMU as soon as possible. Over time, this has given way to a more considered stance. Some countries already adopted a ‚strategy on the entry to EMU’11, but most of the countries are reticent with an official statement, on the target date. For example, in the Czech Republic, 2009 is now being cited as entry date; previously, there had been talks of joining quickly. In some other candidate states, the government and central bank, which are essential authorities for meeting convergence criteria, have not achieved a common position on the entry date yet.
Table 1.2-1 Goals for EMU participation
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The reason for this is that the countries have to weigh up nominal and real convergence. Nominal convergence means the fulfilment of the Maastricht convergence criteria. Moreover, it must be for sure that the candidate’s inflation and interest rates, exchange rate and budget deficit are sustainable. Real convergence refers to the desired process of catching up through economic growth and higher per capita income. It is generally agreed that, in the long run, price stability and fiscal discipline create the best conditions for sustained, robust economic growth. But there are situations, where possible conflict between convergence and growth may occur. For instance, if a country is registering a high budget deficit and severe inflation, efforts to satisfy the convergence criteria as quickly as possible may cause a sizeable loss of growth for a time. In addition, it must be feared that the pursuit of a rigorous policy in order to fulfil the criteria will produce temporary, but not “ sustainable“, results; in other words, problems will erupt sooner or later, e.g. with a structural budget deficit. After taking a look at the present performance in respect of the convergence indicators (Table 1.2-2), it is obvious that the criteria still present considerable difficulty for a number of the ten CEECs. This goes particularly for inflation and their budget deficits. The four largest candidates - Poland, Hungary, Czech Republic and Slovakia - are troubled with high budget deficits, which rose considerably further in 2002. The Czech deficit would have been much higher still in 2002 without the abundant proceeds from privatisations. The budget balance gives no grounds for concern in the smaller states, with the exception of Slovenia, in 2002.
Table 1.2-2 Accession countries and convergence criteria
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On inflation, 4 of the 8 prospective members from Central and Eastern Europe exceeded the reference value of 3.0%; the highest rates being registered in Slovenia and Hungary. General government debt was well below the reference level of 60% in all the acceding countries. Hungary is closest to this ceiling, 57,6 %. It is still difficult to assess the countries’ performance in the convergence of long-term interest rates, especially since the capital markets of the 10 CEECs are not very highly developed. It remains to be seen whether long-term (ten-year) government bonds will even exist in all countries at the time of the convergence test. If not, a comparable market rate must be used. At this stage the countries cannot really be assessed on the remaining criterion, the stability of the exchange rate, as they cannot yet be members of the ERM II. The table shows also the fluctuations of average rate of exchange of the last 3 years against the euro. The fluctuations are still large - except in the countries with a currency board anchored on the euro. The table provides us only with indicators from 2002. The fulfilment of the Maastricht criteria from the beginning of transition up to now is assessed in section 3.1.
For the candidate countries that will insist on the ambition of an early EMU membership and will manage to meet the convergence criteria, the scenario for adoption of the euro could look according to Deutsche Bank Research12 as follows:
- May 1, 2004: accession to the
- Simultaneously, membership in the ERM II. Test period for the exchange-rate criterion from May 1, 2004 to April 30, 2006. Second half of 2006: convergence test by the ECB and the European Commission and decision on acceptance into EMU by the ECOFIN on the basis of a proposal of the European Commission and after consultation with the European Parliament and after a discussion in the European Council in the composition of the heads of states and governments. The examination of the budget and of government debt would probably be based on the data for 2005, or otherwise the latest available figures.
- January 1, 2007: adoption of the euro as national currency. The central bank governor of each new EMU country becomes a member of the Governing Council, the main decision-making body, of the ECB. It has not yet been decided whether euro banknotes and coins will be introduced immediately, or whether there will be an introductory phase in which the euro serves only as book money.
In previous years the governments of most CEECs wanted to join EMU as soon as possible. Baltic countries with a euro-based currency board even expressed their interest to join EMU simultaneously with accession13. After realising the possible conflict between meeting convergence criteria and growth the most CEEC are not so keen on early EMU membership. Because of a weak political flexibility of governments to introduce strong budgetary constrains to meet the 3% deficit threshold, the central banks in some CEEC had to postpone the expected entry to the EMU. If the ERM II fluctuation band of plus or minus 15 % would be tightened14, it can not be ruled out, that the target dates for euro adoption will be changed once again. All in all, it seems rather improbable that all of the new members will join EMU at the same time in another “ big bang“.
1.3 Institutional framework of the ECB after the EMU enlargement
The coming round of the enlargement of the European Union will eventually lead to an increased number of countries participating in the euro area. Indeed, as early as 2006, the euro area could have up to ten new members. Each new entrant into European monetary union will add one new member to the European Central Bank’s Governing Council (GC), the group that sets monetary policy for the euro area. Currently at 18 members15, the GC is already larger than its counterparts at the U.S. Federal Reserve, the Bank of England, and the Bank of Japan. If the United Kingdom, Denmark, and Sweden were also to join, this figure would rise to 31. Under such circumstances, the decision-making would certainly become too cumbersome. Thus, the need for an efficient decision-making process makes it imperative to reform the rules on voting within the ECB Governing Council and to reduce its potential size.
1.3.1 Consequences of the enlargement without the reform of the Governing Council
Efficiency of monetary policy and the size of the Governing Council
At present, the central bank’s presidents from the Euro Area member states are represented in the ECB Governing Council with one vote each. There are also an additional 6 Executive Board members, bringing the total number of those entitled to vote to 18. Formally, the simple majority principle is applied in the ECB Governing Council with regard to monetary policy decisions; in actual fact, however, decisions are usually taken by consensus. Without reform, the influence of both the Executive Board and that of the larger member states in the ECB Governing Council would decrease significantly in the wave of the Euro Area's enlargement to 30 or more. The Executive Board16, which is the body that provides leadership and guidance in the decision making process and which members do not represent the view of any member state, would find itself in a hopeless minority vis-à-vis 22 to 25 national central bank governors. This implies that after enlargement the national influences in GC will get much more consideration. Monetary policy decisions carried out by majority could then conflict with macroeconomic stability in the Euro Area as a whole, if central bank’s presidents represented in the ECB Governing Council were to base their voting behaviour primarily on the cyclical conditions prevalent in their own countries and if these, for example as a result of asymmetrically acting shocks, were to deviate substantially from the Euro Area's general cyclical development.
After enlargement of EMU, it would also take much more time to decide. Imagine that 25 governors and the president make an opening statement each of only 10 minutes so that about 5 hours have passed before discussion and voting can even begin. It will also make it much more difficult for the board to implement its preferred solution which implies that it will be more difficult in general to get any policy’s change accepted. Therefore, efficient decision-making following enlargement will require that the number of members on the ECB Governing Council is limited.
Over-representation of small members in the Governing Council The already existing disproportion between voting rights and the size of the population as well as the economic might that each vote ultimately represents will increase considerably after enlargement. Given the large differences in size between the member states the principle ``one country = one vote´´ does not appear adequate. For what is the rationale behind giving small countries, such as Malta or Cyprus, whose share of the Euro Area's total population accounts for less than 0.2%, the same weight in the decision-making process as the large countries like Germany? In an extreme case, 17 central bank presidents of smaller countries could determine the outcome of a monetary-policy decision, although the countries represent just 20% of the total population and produce only about 15% of the euro area GDP.
1.3.2 Models of the Governing Council Reform
There are three basic options how to reform the ECB Council:
- groups within which voting rotates (e.g., the U.S. central bank)
- groups with one representative each (e.g., the IMF, the World Bank)
- a monetary policy committee constituted of experts (as in the United Kingdom)
Delegation model - The monetary policy committee
In this solution, the decisions of monetary policy are delegated by the GC to a group of independent experts chosen by their competence, experience and reliability, appointed for fixed terms. At first glance, a monetary policy committee comprised of six to ten monetary policy experts seems to be the best solution. Monetary policy requires experts with experience, practical know-how and not representatives who pursue national interests. In addition, it would yield a manageable-sized voting body with a stable composition. However, a number of next reasons could make this option less desirable. First, central bank presidents are usually qualified and experienced experts. Second, as was already stressed, their knowledge of regional developments contributes to a more complete assessment of the developments in the euro area. Third, as regards the accountability and credibility of the ECB, the central bank’s presidents from each individual country constitute the most important links between the countries and the Governing Council of the ECB. Fourth, it is difficult to imagine that the election of monetary policy experts in the euro area could take place without consideration of their regional origin. Fifth, the experts in the monetary policy committee are not necessarily less attentive to regional developments than the presidents of the national central banks. A study of the voting behaviour in the Fed has revealed that in the United States the members of the executive board take into account developments in their home regions.17
Representation is the system operated e.g. by the International Monetary Fund (IMF). Here countries would be grouped with four or five countries having one vote. The chair would represent the position of the group. If countries in one group diverged in terms of inflation, growth, income level etc., the problem of finding a solution would be transferred from the council to the group. If the one country, one vote principle were kept this would imply that the chair’s position is bound by the vote of the majority of its constituencies. There are many forms how to make groups, but usually, the best solution probably is to form countries according to their expected economic position, i.e. one based on close similarities in business cycles or in economic structure. The two-step decision-making process need not necessarily be more efficient than alternative where all members and the board come together jointly. Decision costs could be just as high. On the other hand, this solution allows, that all countries would always be represented and the decision-making body would be of a manageable size.
The alternative solution is one that would follow the system of the Federal Reserve Board in the US. In addition to a group of 7 permanent board members (the president, the vice-president and five other persons), there is a group of twelve regional federal reserve banks’ governors who take turns to fill the other five seats in the council.18 If this example were to be followed, obvious questions would be whether there should be permanent seats for some countries and which ones those would be. Following a recent proposal, the size of the groups could depend on the relative sizes of countries that are members of the group. This would imply that a group would be assigned a number of seats according to the size of its member countries. A group consisting of Germany, France, the UK and Italy might receive 3 seats, as would the group consisting of Spain, Netherlands, Sweden, Belgium, Austria and Poland. Two seats would be allocated to Denmark, Finland, Greece, Portugal, Ireland, Czech Republic and Hungary, while one seat would be allocated to the remaining ten countries. The advantage of this system would be that it allows to bring together as closely as possible the relative sizes of countries and their voting power, while at the same time preserving the principle of ``one country = one vote´´, since each country entitled to vote would have equal voting power. At the same time, it would avoid the problems of representation and aggregation of preferences, while being efficient because the number of governors on the council would be nine. The handicap could be that just because countries are of similar sizes, this does not imply that they have similar preferences regarding monetary policy. A group comprising such diverse countries as Poland and the Netherlands, or Luxembourg and Romania indicates that rotation does nothing to ensure that the interests of smaller countries are taken into account. The biggest weakness of this solution is political. The larger member states would probably argue that they deserve a permanent seat on the council but the smaller members would object to this. The smallest countries in particular would be the ones that would lose most from a reform of the current system.
1.3.3 Proposals of the ECB and the
After considering the pros and cons of previously mentioned alternatives a model based on the principles of group formation and rotation seems to be the appropriate alternative. The advantage of forming groups over delegation to a committee is that the specific country knowledge of national central presidents is incorporated into the decision-making process, thereby contributing to a well-rounded picture of developments in the Euro Area. Moreover, the national central bank’s presidents are the links between their respective countries and the ECB Governing Council with respect to accountability and credibility of the central bank. The disadvantage of representation compared with rotation is that the representatives are no longer independent decision-makers, but have to coordinate their views with those of other group members prior to voting, which reinforces the tendency to represent national interests. The recent ECB's proposal of December 2002 and that put forward by the DIW Berlin, Germany in April 2002 are both based on the principles of group formation and rotation.
The ECB proposal envisages the establishment of three groups of Euro Area central bank’s presidents with a specific number of votes per group once the number of member states reaches 22. Within these groups, votes will be apportioned on the basis of a rotation system that, as yet, has not been clearly specified. In a 25-country Euro Area, the composition of the groups would be as follows: Group 1, made up of the five largest countries would have four votes; Group 2, encompassing 13 countries would have eight votes; the seven small countries in Group 3 would together have three votes (Table 1.3.3-1). This distribution implies a strong under-representation of the large countries.
Table 1.3.3-1 Votes in Governing council
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In the DIW Berlin proposal, only the smaller countries form groups within which the voting right rotates, while the larger countries have a permanent vote each. As far as possible, the groups are established on the basis of regional criteria. GDP and population size are equal factors determining a country's weight (Table 1.3.3-2).
Table 1.3.3-2 Economic Weightings
Abbildung in dieser Leseprobe nicht enthalten
Previous table shows that there would be 6 groups of 3 countries. Each of these groups has one vote, while the central bank’s presidents of the seven remaining countries have a permanent vote. In addition, the four largest countries each have a permanent right to nominate one executive board member, so that, depending on their size, the Euro Area member states have two votes, one vote, or one vote every three years.
The proposal of DIW has two advantages over that of the ECB: firstly, the size of the decision-making body is more manageable and the decision-making process therefore more efficient. Secondly, the distribution of votes corresponds more closely to the economic significance of the respective countries. In the event of 25 member states, the ECB proposal implies for 31 members on the ECB Governing Council, 21 of who can vote, whereas the DIW Berlin proposal envisages that the ECB Governing Council would be made up of 19 members, each with a vote.
In an extreme scenario, the ECB proposal means that nine small countries (Malta, Estonia, Lithuania, Hungary, the Czech Republic, Finland, Greece, Luxembourg and Portugal) with a 6% share of the Euro Area's GDP (and an 11% share of the population) could bring about a majority decision. The DIW Berlin's proposal stipulates that only countries that represent at least 29% of GDP or 37% of the Euro Area population can make a majority decision. A further difference is that, according to the DIW Berlin's proposal, only the central bank presidents with a right to vote would be able to participate actively in the ECB Governing Council. This would reduce the number of active Governing Council members to 19 (13 central bank presidents plus six Executive Board members), as opposed to 31 in the ECB proposal. Such a high number of participants might entail a severe loss of efficiency. All possible solutions have some advantages and weak spots, but the current system is even weaker than all the alternatives. In my opinion, the DIW proposal is more appropriate than that of the ECB. Fewer GC members than in the proposal of ECB assure the efficient decision- making. Moreover, the proportion between voting rules reflects more reasonably the economic power and the size of population of the member states. The Nice Treaty enables the European Council to change the voting rules laid down in Art. 10.2 of the Protocol on the Statute of the European System of Central banks and of the European Central Bank.
1 Cyprus, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia, Slovenia.
2 Copenhagen criteria: In 1993, at the Copenhagen European Council, the Member States defined the economic and political conditions required for membership in the European Union
3 This follows from the Amsterdam Treaty, which declares that all future member states „shall adhere to the goals of EMU“. It was spelled out explicitly in accession treaties.
4 Protocol on certain provisions relating to the United Kingdom of Great Britain and Northern Ireland, Protocol on certain provisions relating to Denmark, both annexed to to the Treaty establishing the European Community after incorporation of Maastrich Treaty
5 Article 121 of the Treaty on establishing European Community, in more detail defined in the Protocol on the convergence criteria referred to in Article 121 and in the Protocol on the excessive deficit procedure, both annexed after incorporation of Maastrich Treaty
6 The EC Treaty and all annexed protocols do not mention any 15% fluctuation within the ERM bands, but just the observance of the normal fluctuation margins provided for by the exchange-rate mechanism of the European Monetary System. The fluctuation band of plus or minus 15 % was set and defined in The resolution of European Council on the new exchange-rate mechanism from 1997, which came into force 01.01.1999
7 Once accession countries enter the EU they have they same status with regard to EMU as Sweden nowadays (country with a derogation).
8 There are no indications, though, as to what this means in practice. But EU members do have to coordinate their economic and fiscal policies with the community in the ECOFIN Council.
9 The central banks must be independent of the governments; direct central bank financing of public sector deficit is prohibited.
10 When exercising the powers and carrying out the tasks and duties, neither the ECB, neither a national central bank, nor any member of their decision-making bodies shall take instructions from the Community institutions or from any government of a Member State.
11 e.g. Poland, Slovakia, after discussion between government and central bank, adopted a national strategy on entry to EMU
12 Deutsche Bank Research, EU Monitor 2003-„Scenario for rapid adoption of the euro“
13 A currency board based on euro is comparable with ERM
14 The European Union's monetary affairs commissioner, Pedro Solbes, announced on 20th May that the currencies of EU applicant countries have to remain within a +/- 2.25 percent exchange-rate band for two years before those countries may adopt the euro. It was previously assumed that the present requirement to stay within a +/-15 percent band would be sufficient. Later on 24th June 2003 he denied it partially.
15 Six members of the executive board and twelve national representatives, namely the Governors of the national central banks of EMU members.
16 It consists of the ECB president, the vice president, and four other appointed officials
17 E. Meade and N. Sheets: Regional Influences on U.S. Monetary Policy: Some Implications for Europe, Discussion Paper No. 523/2002, Centre for Economic Performance.]
18 New York, as the financial center, has a permanent seat and Chicago and Cleveland (historically minor financial centers) take turns to fill one other seat. The remaining nine banks rotate through the remaining three seats.