Thursday, September 15, 2011

The damaged ECB legitimacy (fg)

Please find a worth reading comment of Anne Sibert (© )on the ECB's changing legitimacy since August 2007. Besides the well-known critic on the ECB's liquidity provisions and Secutrity Market Program, the voting procedure, indeed, seems at odds with procedual transparency
It turns out that votes on policy rates are never taken. Apparently, some small subset of the Governing Council decides, prior to the meeting, what the policy rate will be and this is then presented to the entire Governing Council, which we are to believe always or almost always unanimously approves. This explains how the Governing Council is able to produce the lengthy post-policy meeting statement that Mr Trichet views as the ECB’s major contribution to transparency. With the decision made before the meeting, there is ample time to prepare it.
That this extraordinary decision-making mechanism has gone on for so long with no formal explanation beggars belief. Who gets to make the decision? Why is it that no Governing Council member has ever insisted upon their legal right to a vote on monetary policy? Is there really never any dissent? How can that be? That we are able to ask these questions about an institution that is supposed to be one of the world’s two most important central banks is not good for its legitimacy. Moreover, while this arrangement has functioned well enough so far, what would happen if some future president were a little less like Mr Trichet and a little more like, say, Davíð Oddsson?
In Mr Trichet and the Governing Council’s defence, the ECB is woefully badly designed. The Governing Council has 23 members – a ludicrous size for a decision-making body. If each member gets a ten-minute opening statement, the rate-setting meeting would have gone on for almost four hours before any actual debate begins. With no formal way of reducing the size of the decision-making body, Mr Trichet may have had little choice but to make monetary policy informally.