Outlook: Single currency

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The Independent Online
WITH JUST 44 days to go before D-day for the single currency, there is still a lorryload of detail yet to be agreed, defined, refined and announced to the outside world about how the European Central Bank, which will determine European interest rates, will work in practice.

One of those things is quite how open and accountable the ECB will be. Wim Duisenberg, the ECB's president, has already said that minutes of the ECB's deliberations will not be published for many years. He's against all this accountability lark, you understand, not because he's undemocratic but on the not unreasonable grounds that the more public the ECB is about what it's doing, the more prone it will be to bickering and the pursuit of national self-interest. Leave it to us technocrats, we know what we're doing, seems to be his attitude.

On the other hand, there's nothing in the ECB's terms of reference to say it cannot publish minutes, and the issue has yet to be decided finally. On the face of it, Britain has no say in these matters, since it is not among the 11 countries founding the single currency and is not represented on the ECB board. But that's not stopping Gordon Brown, the Chancellor, mounting a campaign for greater openness, a case he is pressing vigorously among finance ministers in Europe. When he meets Oskar Lafontaine on Thursday he may be pushing at an open door.

Mr Lafontaine, Germany's new finance minister, is already at odds with central bankers over interest rates, which he thinks too high for Germany, and although he hasn't said so overtly, he's bound to be in the greater accountability camp. Mr Brown is working with Mr Lafontaine and other left leaning European finance ministers on a statement - provisionally titled "The New European Way: Economic Reform and the Framework for Economic and Monetary Union" - which will address some of these issues.

As a recent paper by the Centre for Economic Policy Research said, one of the biggest potential problems faced by the ECB is that in a recession, fiscal discipline is likely to break down, forcing the ECB into an every tougher policy stance on interest rates. In these circumstances it is vital that some cooperation between fiscal and monetary authorities is maintained. In a world where there is no public explanation of why rates are changed and no knowledge, other than by leak and innuendo, of how council members have voted, this would be difficult to the point of impossibility.

Members of the Bank of England's Monetary Policy Committee are generally doing a good job at explaining themselves, not just through the presence of regularly published minutes of their meetings, but also through the speeches they give which illuminate the methodology used in reaching interest rate decisions, thus opening it up to public debate and through explanation reinforcing its credibility.

There is no such transparency planned for the ECB. Just to give one example of the effect of this, Mr Duisenberg does plan to publish an inflation target, but there will be no inflation forecasting. As there will be no explanation of interest rate decisions, the outside world will be left to speculate and guess at how the ECB might respond to deviations in inflation, what lead times it might apply and how sensitive it thinks prices are to movements in rates.

A quite unacceptable degree of uncertainty verging on the arbitrary will enter proceedings, and the ECB will find itself wide open to criticism and ridicule. It may be that by the time Britain enters the euro, the necessary degree of public accountability has already been injected, but certainly there could be no question of going in without it.

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