Powerless Europe: Why is the Euro area still a political dwarf?

International Finance

Volumn 9, Issue 2, 2006, Pages 261-279

  Smaghi, Lorenzo Bini ^a  

^a EUROPEAN CENTRAL BANK   (Germany)

Author keywords

[No Author keywords available]

Indexed keywords

EID: 33750048438     PISSN: 13670271     EISSN: 14682362     Source Type: Journal    
DOI: 10.1111/j.1468-2362.2006.00182.x     Document Type: Note

References (29)

1. For central banks, the Bank for International Settlements (BIS) plays of course an equally important role.
2. Within the Eurosystem (which consists of the ECB and the national central banks of the EA), the ECB decides on the external representation of the tasks assigned to it. Article 6.2 of the Statute of the European System of Central Banks and the European Central Bank (Statute) specifies that 'the ECB and, subject to its approval, the national central banks may participate in international monetary institutions'. Article 6.3 stipulates that ECB decisions on external representation must not conflict with any decisions taken by the EU Council in the field of external representation on the basis of Article 111(4) of the Treaty establishing the European Community (Treaty).
3. Article 111(1) of the Treaty provides that it would ultimately be the competence of the Council (in EA composition) to decide (by unanimity) on the conclusion of a exchange rate system for the euro in relation to non-Community currencies. However, for any such decision, as well as for subsequent decisions concerning the central rates to be applied, the Council would need to act upon a recommendation of the ECB or from the Commission and consult the ECB in order to reach a consensus consistent with the objective of price stability. An equally close interaction is foreseen in Article 111(2) with regard to the possible formulation of general orientations for exchange rate policy. The Luxembourg European Council of December 1997 made clear that such orientations should only be formulated in exceptional circumstances, such as a clear misalignment of exchange rates. See also C. Zilioli and M. Selmayr (1999), 'The External Relations of the EA: Legal Aspects', Common Market Law Review, 36, 273-349
4. The term Lamfalussy framework refers to the regulatory and supervisory framework applying to EU financial markets. It is named after Alexandre Lamfalussy, who chaired a group of wise men on this issue.
5. In case the ECOFIN Presidency is held by a non-EA country, the task falls upon the representative of the EA country next in line to hold the ECOFIN Presidency.
6. Article XII, Section 3(b)(i) of the IMF's Articles of Agreement states that 'The Executive Board shall consist of Executive Directors⋯ five shall be appointed by the five members having the largest quotas'.
7. The main preparatory body for the formation of common positions and understandings is the EU's Economic and Financial Committee (EFC). For IMF issues, there is also a specialist sub-committee, the SCIMF, which addresses relevant longer-term, strategic issues such as the IMF's current strategic review.
8. 'Article IV' consultations provide for a regular monitoring by the IMF of its member countries' economies.
9. In case the ECOFIN Presidency is held by a non-EA country, the arrangements described in footnote 5 apply.
10. See L. Bini Smaghi (2006), 'IMF Governance and the Political Economy of a Consolidated European Seat', in E. M. Truman (ed.), Reforming the IMF for the 21st Century, Special Report 19, Institute for International Economics, Washington, DC, April.
11. On the relationship between the distribution of preferences and the pooling of votes from a more general perspective, see also J. Frieden (2004), 'One Europe, One Vote? - The Political Economy of European Union Representation in International Organisations', European Union Politics, 5(2): 261-76.
12. Fifteen per cent if the ECOFIN President comes from a non-EA country.
13. See also J. Pisani-Ferry (2005), 'The Accidental Player: EU and the Global Economy', lecture at the ICRIER, New Delhi, 25 November.
14. See also S. Everts (1999), 'The Case for Mr. Euroland', Centre for European Reform Bulletin, 8, October.
15. According to the IMF's Article of Agreement, a number of issues of fundamental relevance for the fund need to be decided with a majority of 85% of shares ('super majority').
16. See L. Bini Smaghi (2006, op. cit.) and D. Leech (2002), 'Voting Power in the Governance of the International Monetary Fund', Annals of Operations Research, 109, 375-97.
17. See J. Pisani-Ferry (2005, op. cit.).
18. European Commission (2004), 'Trade Policy in the Prodi Commission 1999-2004 - An Assessment', November, p. 4.
19. This paper does not aim to provide a full-fledged legal analysis. For a more comprehensive picture, see, in particular, B. Steinki (2003), 'Competencies of the European Community on IMF Matters: An Overview of the Key Legal Questions', IMF, Current Developments in Monetary and Financial Law, 2, 109-47; C. W. Hermann (2002), 'Monetary Sovereignty over the Euro and External Relations of the EA: Competences, Procedures and Practice', European Foreign Affairs Review, 7, 1-24; C. Zilioli and M. Selmayr (1999, op. cit.), and R. Frid (1995), The Relations between the EC and International Organisations. Leiden: Martinus Nijhoff.
20. ECJ Opinion 2/91 [1993] ECR I - 1061, paras 36 and 37.
21. The key provision in this respect is Article 10 of the Treaty.
22. Unlike in the WTO, where the Community has become a full member alongside the individual Member States. As trade is an exclusive Community competence, only the Commission takes the floor at WTO meetings.
23. See also A. Virmani (2005), 'A Tripolar Century', ICRIER Working Paper 160, March, p. 10.
24. J.-V. Louis (2003), 'Governing the EMU or Governing the EU', Revue bancaire et financière, 67(6), 341-7.
25. See Eurobarometer flash report (2005), 'The Euro, Four Years after the Introduction of Banknotes and Coins', November.
26. Article 111(4) provides that 'the Council acting by a qualified majority on a proposal from the Commission and after consulting the ECB, shall decide on the position of the Community at international level as regards issues of particular relevance to economic and monetary union and on its representation, in compliance with the allocation of powers laid down in Articles 99 and 105'. The Treaty of Nice extended qualified majority voting, which now applies to Council decisions on both EA positions and their representation (previously, decisions on the latter required unanimity).
27. See M. King's speech of 20 February 2006 to the ICRIER on 'Reform of the International Monetary Fund', New Delhi.
28. Cf. L. Bini, Smaghi (2004), 'A Single EU Seat at the IMF?', Journal of Common Market Studies, 42, 229-48, and (2006, op. cit.); E. M. Truman (2006), 'Rearranging IMF Chairs and Shares: The Sine Qua Non of IMF Reform', Reforming the IMF for the 21st Century, Institute for International Economics, Special Report 19; G. Mahieu, D. Ooms and S. Rottier (2003), 'The Governance of the International Monetary Fund with a Single EU Chair', Financial Stability Review, Banque Nationale de Belgique, and (2005), 'EU Representation and the Governance of the International Monetary Fund', European Union Politics, 6, 493-510. D. Leech and R. Leech (2005), 'Voting Power Implications of a Unified European Representation at the IMF', LSE Research Online; E.-R. Perrin (2006), 'La représentation de l'Union Europeenne dans les institutions financières internationales: Vers une chaise unique?', Questions d'Europe - Les policy papers de la Fondation Robert Schuman, 20.
29. However, it is unlikely that an EA chair's voting rights would be calculated in such a mechanical manner. Even allowing for technical corrections, however, the EA would still have a blocking minority on fundamental IMF policy decisions requiring 85% of votes.