EMU-enlargement and the Reshaping of Decision-making within the ECB Governing Council: A Voting-Power Analysis

Abstract

The monetary policy of the European Central Bank (ECB) is the subject matter of this paper. We analyze the prospects for future price stability in an enlarged European Monetary and Economic Union (EMU). At the heart of this study are the potential e®ects of altering decision-making procedure within the Governing Council of the ECB on price stability in the eurozone. The authors compare the impact of three alternative reform scenarios of the ECB Governing Council with the help of a voting-power analysis. It is presumed that a considerable loss of current EMU-members’ influence power especially in favour of joining Central Eastern European Countries (CEECs) results in a loss of monetary credibility of the ECB: As transparency of the decision-making process within the ECB is lacking, markets may consider the ECB to be too much inclined to the economic performances of the CEECs. This has then a negative impact on the level of price stability in Europe. The voting-power analysis indicates which reform proposal is best with respect to a price-stability benchmark.