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Laurence Boone – Neue Regeln für die Euro-Zentralbank

6. Februar 2007

An Europas Zentralbank prallt die Kritik aus Frankreich weitgehend ab. Dabei gäbe es durchaus dezente Verbesserungsmöglichkeiten, schreibt die Frankreich-Chefökonomin von Barclays Capital.

The strength of the euro has been subject of much criticism from French politicians over the past few weeks. All the critics, including those of the two most prominent candidates to the Presidential elections (N.Sarkozy and S.Royal) seem to agree on one issue: the ECB focuses too much on inflation – which is low anyway – and does not pay enough attention to employment levels and GDP growth. These critics tend to be disregarded by experts, as well as most other EU governments, on the ground that the ECB is independent.

Three options are commonly considered: to change the statue of the ECB in order to reduce its independence, to rebalance the objective with less weight on inflation, more on GDP growth and employment, to strengthen the dialogue between the Eurogroup and the ECB.
Changing the status of the ECB is akin to science fiction. It would be possible only through a change in the Treaty, which requires a unanimous vote from 27 EU members, most of whom are strongly attached to the principle of central bank independence.

However there are other things that EU governments can do which do not require a change of the Treaty. More specifically, the Treaty does not specify an answer to the question “Who defines price responsibility?” In practice, this opens the door for the Commission to propose and negotiate with the Council and the ECB a change to the definition of price stability. The ECB would have to be included in these negotiations because the Treaty specifies that the ECB cannot take instructions from a government. Furthermore, the ECB has set a precedent by defining price stability first and would then argue that its independence is put into question. 

In reality, it must be acknowledged that monetary policy has not been very restrictive since the inception of the euro: inflation has been over the 2% target for the most part since 2000, and it is only very recently that it has started declining below the 2% thresholds. In addition, it is quite ironical to blame monetary policy for stable prices while fighting “abnormal price inflation” on the back of the euro at the same time …That said, going through a procedure of common definition of price stability by the ECB, the Commission and the Council would grant the definition a legitimacy it currently lacks.

Monetary policy could also be affected through the exchange rate. The Treaty grants the ECB the responsibility for conducting exchange rate “operations” but at the same time allows Finance ministers, acting on a qualified majority after a recommendation from the Commission and after consulting the ECB, or on a recommendation from the ECB, “to formulate general orientations for exchange-rate policy in relation to” other currencies, provided that this is once again without prejudice to the ECB’s primary objective of maintaining price stability. In this respect, the latest Eurosystem inflation projections, which effectively project inflation in line with the ECB’s own definition of price stability (below, but close to, 2%) might be seen to open the door for finance ministers to issue such a recommendation to the ECB were the euro to appreciate further.

That said, numerous academic works have shown that central bank interventions are largely inefficient in reaching an exchange rate target. In addition, most interventions tend to be sterilised in order not to impact interest rates. Thus intervention can only be a very short-term instrument for influencing the exchange rate (indeed the ECB has never intervened to weaken the euro, only to strengthen it).

Last, but maybe not least, it is always possible to “increase the dialogue between the ECB and the euro area governments”, by giving a more formal status to the Eurogroup. The underlying idea of this suggestion comes from the thought that the US Fed speaks more often with the US Government than the ECB does with European Governments, so that the Fed takes into consideration employment and growth when implementing monetary policy. This idea was in the EU Constitutional Treaty, and has gone some way through the implementation of a 2 years presidency for the Eurogroup, in place of the rotating 6 months presidency.

Granted, this could improve the dialogue between the Eurogroup and the ECB, maybe ease structural adjustment in euro are countries in exchange for more accommodative policies …although one cannot be sure that easing structural adjustment is the justification French politicians have currently in mind when arguing for more dialogue with the ECB. In addition, the performance of the Eurogroup in terms of budgetary policy, the only policy on which it has a real say for the moment, is not particularly remarkable…

Overall to believe that monetary policy can be changed on injunctions from European government is not reasonable. That said, the Treaty has left some rooms for a cooperation between government, the Commission and the ECB to impact monetary policy: in the short-run, through the direction of the exchange rate; in the medium run, European government could grant more democratic legitimacy to the definition of price stability