Select Committee on European Union Minutes of Evidence

Memorandum by HM Treasury


  1.  This paper is a contribution from HM Treasury to the inquiry into the European Central Bank (ECB) by the House of Lords' Select Committee on the European Union, "to review the two-pillar monetary policy strategy of the ECB; and the structure and workings of the Bank". It supplements the paper submitted to the Treasury Select Committee on 13 January 2003 on the ECB; the Treasury's Explanatory Memorandum (EM) of 8 March 2003 on European Community (EC) documents 6163/03 and 6684/03 regarding amendments to the voting modalities of the ECB Governing Council; the letter of 20 March 2003 from the Financial Secretary to the Treasury to the Lord Grenfell regarding this EM; the Treasury's EMs of 12 May 2003 on EC documents 8713/03 and 8711/03 regarding the appointment of a new president of the ECB, and of 13 May 2003 on EC documents 8727/03 and 8719/03 regarding the appointment of a member of the ECB Executive Board; and Command Paper number 5840 on the Decision of the Council meeting in the composition of the Heads of State or Government on amendments to the voting modalities of the ECB Governing Council, and its accompanying EM, laid before Parliament on 11 June 2003 under the Ponsonby Rule.


  2.  On 9 June the Chancellor of the Exchequer made a statement to Parliament on UK membership of Economic and Monetary Union and published the Treasury's assessment of the five economic tests. 18 detailed supporting studies were published alongside the five tests assessment.

  3.  In response to the Committee's call for evidence, the Government refers the Committee to: the comments made by the Chancellor in his statement to the House of Commons on Monday 9 June, "We will also continue to . . . seek reform of the European Central Bank"; Chapter 5 (specifically paragraphs 5.17 to 5.27) of the Treasury's assessment of the five economic tests, which includes an assessment of the monetary policy framework of the euro area; and Chapter 3 of the EMU study Policy Frameworks in the UK and EMU, which examines the robustness of the frameworks for macroeconomic policy in the UK and euro area, and implications for the UK in achieving the Government's objective of high and stable levels of growth and employment in or out of EMU.


  4.  Following the Treasury's EM of 13 May 2003 on EC documents 8727/03 and 8719/03 regarding the appointment of a member of the ECB Executive Board and in addition to the Committee's call for evidence, the Lord Grenfell, in a separate letter of 20 May 2003 to the Financial Secretary to the Treasury, addressed further questions to the Government concerning its views on appointments to the ECB Executive Board.

  5.  Regarding the role of the European Parliament in appointments to the ECB Executive Board, both the EC Treaty (Article 112(2)a) and the Draft Constitution (Article III-82) published by the European Convention on 28 May 2003 provide for appointments to the ECB Executive Board to be made "by common accord of the governments of the Member States at the level of Heads of State or Government, on a recommendation from the Council, after it has consulted the European Parliament and the Governing Council of the European Central Bank". Accordingly, in the context of Gertrude Tumpel-Gugerell's recent nomination to the Executive Board, at its meeting of 29 April 2003, the European Parliament's Committee on Economic and Monetary Affairs heard Mrs Tumple-Gugerell and subsequently, on 15 May 2003, adopted a favourable opinion on her appointment. The Government is satisfied with the existing institutional balance and will not be pursuing amendments in the forthcoming Intergovernmental Conference.

  6.  Regarding the Government's views on the issue of diversity in nominations to the ECB Executive Board, Article 43(3) of the Statute of the European System of Central Banks (ESCB) and of the ECB provides for only participating Member States to be involved in such appointments. Paragraphs five and eight of the Protocol on certain provisions relating to the United Kingdom of Great Britain and Northern Ireland make clear that the UK does not participate in such appointments. The Government nevertheless supports moves to enhance diversity amongst the membership of the ECB Executive Board; more generally the Government, demonstrated through the work of the DTI and the Women and Equality Unit, is fully committed to bringing about measurable improvements in the position of women which benefit society generally; and to promoting equality for all. In the context of ECB appointments, the EC Treaty (Article 112(2)a) and the Statute of the ESCB and of the ECB (Article 11.2) provide for appointments to the Executive Board to be made "from among persons of recognised standing and professional experience in monetary or banking affairs".

  7.  It is not for the UK Government to comment on how other EU Member States nominate their national central bank governors. In the UK, the Governor and the two Deputy Governors of the Bank of England are appointed by the Queen on the advice of the Prime Minister and the Chancellor. As part of the process, a list of required qualities is prepared, a shortlist of potential candidates is then identified and discussions take place prior to a recommendation being made by the Chancellor to the Prime Minister. In addition to the recent decision to appoint Mervyn King as Governor, Rachel Lomax was appointed to the position of Deputy Governor with responsibility for monetary stability, with effect from 1 July 2003.

  8.  Vacancies for non-executive directors to the Bank's Court (or Board) of Directors are advertised and active steps are taken to identify a diverse field of candidates, through the use of recruitment consultants who are specifically requested to identify candidates from diverse backgrounds, and by including an equal opportunities statement in the advertisements. The process also attempts to seek out candidates from a range of sectors and with different regional perspectives. An appointments panel (including an independent member) then shortlists and interviews candidates prior to making recommendations to the Chancellor.

HM Treasury

June 2003

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