Questions over ECB's workings

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The Independent Online
THE EUROPEAN Central Bank (ECB), which starts life formally in Frankfurt on 1 July, is a dark horse. While the details of its structure and board members are now known, there is a much uncertainty about how it will work in practice.

One of the question marks hangs over its relationship with the politicians, and specifically the Euro-X council of finance ministers. This relationship is likely to shift constantly with events and personalities.

Pessimists see the ungainly weekend deal for Wim Duisenberg, the first president, to step down half way through an eight-year term as an omen of future political interference.

Optimists note that the six-person executive board and 17-member governing council consist of eminent and tough-minded central bankers. Their personal credibility will boost that of the fledgling institution, or so it is hoped.

However, it is clear that there will be disagreements within the council about the right level of interest rates, given the different starting points of member countries. "The ECB-watching industry is going to be the growth sector par excellence of the late 1990s," said Alison Cottrell, chief economist at Paine Webber in London.

A further uncertainty arises from the fact that for some years there will be no definitive economic statistics for the euro area. Policy in the early years will be aiming at a fuzzy target against a background of millennium-related upheaval and continuing fallout from the Asian crisis.

The ECB is headed by an executive board of six, of whom only one, Italy's Tomasso Padoa-Schioppa, arrives with a reputation as a "dove" on interest rates.

Apart from the president, the dominant personality is likely to be the ultra-hawkish Otmar Issing. His reputation as the Bundesbank's chief economist since 1990 is sky-high, and he is also far less charisma-impaired than most central bankers.

The six are joined by the 11 member central bank governors on the governing council, which will vote on interest rate decisions. Minutes of their meetings will not be published unless the secrecy amongst the grey and nearly all-male group eventually provokes enough popular discontent.

The ECB has a broader general council, adding to the 17-strong governing council the central bank governors of the four EMU "outs". It will have purely administrative rather than policy responsibilities, but will keep open channels of communication between the ins and the outs.