ECB would benefit from ‘a bit more light’

    The skyline with its banking district and the European Central Bank (ECB) is photographed in Frankfurt, Germany.
    The skyline with its banking district and the European Central Bank (ECB) is photographed in Frankfurt, Germany.

    By Swaha Pattanaik

    LONDON- Christine Lagarde may be about to let a bit more light in at the European Central Bank.

    The policy-making process at the central bank is less formal and transparent than at its peers.

    Its new boss could change that by holding a proper vote on key decisions.

    Lagarde wants to kick off her tenure with a discussion about how monetary policy is decided.

    According to the Financial Times she will this week receive proposals for change from four members of the ECB’s governing council.

    At least one will suggest introducing a formal ballot on monetary policy choices.

    The Frankfurt-based authority’s decision-making process is less formal than at the Federal Reserve and the Bank of England, which hold such ballots and say which way individuals voted.

    The ECB’s current practice is to ask each of its rate-setters for thoughts about policy.

    While some members may take a clear line for or against a proposal, others will voice a few quibbles but then express willingness to go along with the consensus.

    Only in rare cases does the ECB president call for a vote.

    There is a good reason why the ECB hasn’t embraced the central bank vogue for greater transparency.

    Its policymakers are supposed to leave their national affiliations at the door and think of what’s best for the entire euro zone.

    Shrouding deliberations in secrecy makes it easier for them to set aside national interests without the fear of vilification at home.

    The public disagreements that followed the ECB’s launch of new stimulus package in September undermine that argument.

    Several governing council members, including Dutch central bank chief Klaas Knot, vocally distanced themselves from the decision.

    But not everyone is consistent.

    According to one national central banker, some ECB officials publicly aired arguments against the easing measures that they did not express at the meeting.

    Other rate-setters have disclosed their objections, but not their willingness to go along with the consensus.

    A formal vote would reduce the scope for such manoeuvres.

    True, it would also lead to immediate pressure to publish the results.

    But the ECB could compromise by, say, disclosing anonymous tallies that show the degree of consensus for a decision without naming names.

    A little more light is better than none, and may even be better than too much. – Reuters