ECB Governance in an Enlarged Eurozone

Agnès Bénassy-Quéré () and Edouard Turkisch

Working Papers from CEPII research center

Abstract: In this paper, we provide an assessment of the rotation rule decided by the European Council for the functioning of the ECB Governing council after EMU enlargement. Desired interest rates by each member of the Governing council are calculated on the basis of Fisher, truncated Taylor and Taylor rules successively, and on the basis of a convergence of both GDP per capita and price levels within the EU in 30 years. Then, various decision rules are simulated. We show that moving from the “old” rule (where each member of the Governing council has a vote at each meeting) to the “new” one (where, at a given meeting, only 15 national governors have a vote) does not have much impact on the decisions made by the Governing council in an enlarged Eurozone. However, should rotations be relatively infrequent, the system could end up close to a constituency system. In this case, core Euro12 countries could be better off in a Euro25 than in the Euro12, because they would be in the position of imposing lower interest rates. However, core Euro12 would be worse off in a Euro22 compared to a Euro12 because high inflation countries would be able to impose higher interest rates. On the whole, in a Euro25, the (fast) rotation system which was decided by the European Council appears acceptable by all Euro members because it is never the worst system. However, full centralisation (where the choice of the interest rate is left to the Executive board) would deliver the same results, with much lower transaction costs.

Keywords: ECB; EMU; enlargement; monetary policy; voting (search for similar items in EconPapers)
JEL-codes: E58 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-eec, nep-ifn, nep-mac and nep-mon
Date: 2005-12
View list of references View citations in EconPapers

Downloads: (external link)
http://www.cepii.fr/anglaisgraph/workpap/summaries/2005/wp05-20.htm (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:cii:cepidt:2005-20

Access Statistics for this paper

More papers in Working Papers from CEPII research center
Contact information at EDIRC.
Series data maintained by ().