The European Central Bank is one of the most influential financial institutions in the world economy. Endowed with an extraordinary degree of independence, the European Central Bank (ECB) sets interest rates for the countries that have adopted the euro.
This report reviews the operations of the ECB so far, assessing its monetary policy decisions. It goes on to examine the central bank's monetary policy strategy and considers issues around the structure and governance of the bank, as well as the broader question of the institutional arrangements for the economic governance of the EU as a whole and the euro area in particular.
The Committee concludes that the ECB has performed well so far given its mandate. The ECB is still a young institution, but it has rapidly built up a high level of credibility by delivering the desired objective of price stability. There are, however, a number of significant challenges that the bank is facing: disputes over the Stability and Growth Pact, calls for greater transparency, and enlargement of the EU.
The Committee recommends:
The ECB should adopt a symmetrical inflation target.
The ECB should publish records of meetings of the Governing Council in which the reasoning and various arguments behind monetary policy decisions would be spelled out clearly but not attributed.
It is within the power of the ECB itself to implement these two changes. The Committee's other key recommendations require changes to the draft Constitutional Treaty and so call for the urgent attention of Member States at the current Inter-Governmental Conference:
In due course the monetary-policy decisions of the ECB should be taken by a small Monetary Policy Council, composed of the Executive Board and external experts, which would operate under the oversight of the current Governing Council, where all the Member States of the euro area are represented.
The arrangements for communication between the ECB and the Eurogroup need to be strengthened. There should be an enhanced policy dialogue and exchange of information between the ECB and the Member States of the euro area.