MPC man launches attack on European Bank

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A MEMBER of the Bank of England's Monetary Policy Committee has launched a scathing critique of the European Central Bank, warning that its structure could ultimately undermine the viability of monetary union.

In a policy paper published by the Centre for Economics and Policy Research (CEPR), Willem Buiter, a member of the MPC since June 1997, argues for a series of reforms designed to improve transparency and accountability at the ECB.

Unless the reforms are implemented, he says,"the ECB's deficiencies pose a threat to its continued operational independence. Beyond that, they could put the common currency's survival at risk."

Mr Buiter urged the ECB to adopt a Bank of England-style inflation target, which is both clearly defined and symmetrical - in the UK, inflation should neither undershoot nor overshoot the Government's 2.5 per cent target. According to Mr Buiter, a Dutch academic who describes himself as a long- standing European federalist, "The [ECB] target is fuzzy, and that I don't like."

The ECB should publish the voting records of its members, its inflation forecast and the minutes of its meetings, Mr Buiter argues. National governors should not automatically be given seats on the European Governing Council, and the ECB should be charged explicitly with responsibility for systemic financial stability in Euroland.

Mr Buiter's remarks coincide with the release of the ECB's monthly bulletin, which says that the unexpected decision earlier this month to cut European interest rates by 0.5 percentage points was aimed at "maintaining price stability".