ECB cool on transparency debate

It is one thing for Europeans to demand democratic accountability in EU institutions; quite another, it seems, to expect Europe's central bankers to let us watch their deliberations.

A few days ago, at an early morning breakfast with the French Association of Economic and Financial Journalists, Mr Christian Noyer, the French vice-president of the European Central Bank (ECB), didn't even get a chance to eat his croissants. Why doesn't the ECB publish the minutes of meetings of the governing council (comprising the governors of the 11 national central banks plus the six members of the executive board of the ECB, including Mr Noyer) a journalist asked.

"We consider that to create an institution, you must ensure frankness within the council," Mr Noyer answered. "If people talk for the minutes, that doesn't lead to transparency. It is absolutely necessary that the members of the council think of themselves as Europeans. We need the governor of the Bank of Finland to take account of what happens in Portugal and Italy. But if you put governors under the pressure of the local press when you have a depressed economy in Germany and a boom in Ireland, there is a very strong pressure not to take account of the overall situation. In 1930, the Federal Reserve did not have the policies that it has now. We may be different in 60 years from now too."

For the ECB to publish the minutes of its council meetings would create a meaningless "false transparency" and everything of importance "would take place in the corridors", Mr Noyer said. He believes the ECB's summaries of debates, produced within half an hour of meetings, are sufficient. This way, governors are not subject to criticism back home. "It's easier to say that we took this decision because of the evolution of European economies," Mr Noyer added. "There is a fairly natural consensus."

Other ECB officials point to the bank's monthly press conferences and its president's five visits each year to the European Parliament as proof of openness.

The ECB's alleged lack of transparency was more seriously challenged in a colloquium by the French Economic Science Association last month, whose conclusions will be published in the Revue d'economie politique next June. Three French economists said the ECB's independence must be counterbalanced by a more transparent monetary policy. In particular, they questioned the use of the M3 system to regulate money supply - the pillar of the ECB's monetary policy - and asked whether the ECB uses sufficiently complex economic models to set target inflation levels.

The transparency debate is probably the least of the ECB's worries when, in the words of the ECB president, Mr Wim Duisen berg, the fall in the price of the euro (which dipped below $1.12 yesterday "leaves us perplexed".

Central bankers had expected the new currency to fluctuate within a range of $1.13 to $1.17. But they do not feel the euro's stability is threatened. The ECB has deliberately not set a target for the exchange rate of the euro. To do so, Mr Noyer said, would be "inherently dangerous" because it could jeopardise the price stability which is the bank's primary objective.

The 11 ministers of finance have ultimate responsibility for the exchange rate of the euro under the Maastricht Treaty. But, Mr Noyer added, they wisely decided not to issue guidelines unless a "substantial and persistent misalignment of the euro" occurred.

Mr Noyer stressed that the ECB was still under construction. The bank inherited much of its personnel from the European Monetary Institute (EMI) and the number of employees has increased from 300 EMI staff in January 1998 to 600 today with numbers projected to reach 750 by the end of this year.

Maybe it's because he's French, but Mr Noyer kept comparing the ECB to the US Federal Reserve, which has a staff of 1,800. Because it was founded at the beginning of the century, the Fed is highly centralised, whereas the ECB is decentralised, with operations taking place in the 11 national banks of which it is composed. Citizens of the euro zone have been disappointed by the high commissions charged by banks since the new currency was adopted on January 1st. "We are not in a controlled economy, but one of competition," Mr Noyer said. "I invite the banks who want to increase their share of the market to lower their commission rates."

Armed with a diploma from the Ecole Nationale d'Administration, the elite civil service school that supplies most of France's presidents and prime ministers, Mr Noyer joined the French Treasury at the age of 26. Seventeen years later, in 1993, he became its director. Mr Noyer also served three stints in the cabinets of French finance ministers before becoming the vice-president of the bank last June.