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Preparing the ECB for Enlargement

CEPR Policy Paper #6

By Richard E. Baldwin, Francesco Giavazzi, Erik Berglöf, and Mika Widgren

As the European Monetary Union begins to add member nations, central bank governors of each new member will become entitled to a vote on the European Central Bank’s (ECB) key decisionmaking body, the Governing Council. Euroland’s interest-setting body will thus expand from its current 18 members to 30 or more. The Bank’s decisionmaking structure has worked well so far, having proved its mettle in a series of challenges—the Russian and LTCM crises, the oil and food price hikes, the stock market tech-wreck and the U.S. economic slowdown. But is the ECB ready for the challenge of enlargement? This report argues that the substantial increase of voters in the Governing Council will adversely affect the efficiency of the Bank’s decisionmaking structure. The authors believe that this potential enlargement is a matter of urgent concern, and challenge the ECB and/or the European Commission to formulate a response to this challenge.

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