Survey article

SURVEY EMU

THE two key bodies in the ECB will be an executive board, made up of a president, a vice-president and four to six members, each appointed to eight-year, non-renewable terms; and a governing council, comprising the executive board and the central-bank governors of all euro members. Monetary-policy decisions will be taken by simple majority.

This structure resembles that of the Federal Reserve and the Bundesbank, with one big difference: the ECB is much more decentralised. The Fed’s open-market committee, 12 strong, has seven governors from the centre and only five from among its 12 district branches. The Bundesbank council, which has 17 members, includes nine Landesbank presidents, but they have less autonomy than Europe’s national central bank governors. The greater decentralisation in the ECB will be reflected in its tiny staff: fewer than 500 at the centre, compared with over 20,000 for the Bundesbank and 16,000 for the Bank of France.

Will this decentralisation prove a problem? Daniel Gros, an experienced EMU-watcher at the Brussels-based Centre for European Policy Studies, fears it might. Governors of national central banks will, he thinks, be loth to surrender more authority than they have to. They might produce their own forecasts; they will certainly have their own policy views. Yet it will be important for the credibility of the system, especially in its early years, that the governing council should speak with one voice. The days before the spread of telecommunications, when the Chicago Fed could set different interest rates from New York’s, are long gone.

All of this makes the job of president of the ECB particularly important. He (or she) will be the public face of the institution. A strong president should be able to carry the governing council with him. The row over who should be the bank’s first president is therefore especially unfortunate.

By rights, the job should have long ago gone to Wim Duisenberg, the veteran governor of the Dutch central bank. When he was appointed boss of the EMI 18 months ago, Mr Duisenberg sought assurances from his colleagues that, if only for the sake of continuity, he would also get the ECB presidency. All except Italy and France gave that assurance. The governor of France’s central bank, Jean-Claude Trichet, said he personally would choose Mr Duisenberg. Yet in November last year the French government announced that it was nominating its own candidate for the post: none other than Mr Trichet.

In the months of shabby political manoeuvring that followed, the French have explored the idea of dividing the eight-year term in two, with Mr Trichet taking over in 2002—even though that is contrary to the treaty’s letter and spirit. Other candidates have been floated, including Spain’s Luis Rojo (who seems not to want the post) and Finland’s Sirkka Hamalainen. Mr Duisenberg remains the favourite for the job. In the end it will be Europe’s heads of government who will have to make the choice. Their squabbling has done nothing for morale at the EMI—or for the credibility of the ECB.