7.    The Treaty establishes three principal new bodies in connection with the single currency. First, there is the full-time Executive Board of the ECB which is comprised of the President, the Vice-President and up to four others. Second, there is the Governing Council of the ECB which comprises the Executive Board members and the governors of the national central banks of the countries in the euro zone. Third, there is the General Council of the ECB. Its membership comprises the President and Vice President of the ECB plus the governors of the national central banks of the Member States of the EU. Finally, there is the European System of Central Banks (ESCB) which consists of the ECB and the central banks of all the Member States of the EU.

   8.    The Treaty contains the provisions which establish these three bodies. A protocol annexed to the Treaty, the Protocol on the Statute of the European System of Central Banks and of the European Central Bank, ("the protocol"), contains more detailed provisions. The following paragraphs set out the main elements of these provisions.

PRIMARY OBJECTIVE

  9.    Article 105 of the Treaty states starkly that, "The primary objective of the ESCB shall be to maintain price stability. Without prejudice to the objective of price stability, the ESCB shall support the general economic policies in the Community, with a view to contributing to the achievement of the objectives of the Community as laid down in Article 2". The phrase "without prejudice" at the start of the second sentence quoted serves, it appears to us, not to weaken the primacy of the maintenance of price stability, but to reinforce it.

INDEPENDENCE

  10.    The independence of the decision-making bodies of the ESCB in the performance of their tasks is rigorously protected by the terms of Article 107 of the Treaty. Under these provisions the members of these bodies shall neither seek nor take "instructions from Community institutions or bodies, from any government of a Member State or from any other body. The Community institutions and bodies and the governments of the Member States undertake to respect this principle and not to seek to influence the members of the decision-making bodies of the ECB or of the national central banks in the performance of their tasks."[2]

APPOINTMENTS

  11.    The provisions for appointing the members of the decision-making bodies require that those appointed are persons of recognised standing and professional experience in monetary or banking matters. Under Article 109a of the Treaty, the President, the Vice-President and the other members of the Executive Board of the ECB shall be appointed "by common accord of the Governments of the Member States at the level of Heads of State or of Government, on a recommendation from the Council, after it has consulted the European Parliament and the Governing Council of the ECB. Their term of office shall be eight years and shall not be renewable." Under Article 11 of the protocol the persons appointed are to perform their duties on a full-time basis and shall not engage in any occupation, whether gainful or not, without exceptional dispensation from the Governing Council.

  12.    Initial appointments to the Executive Board are to be made in a way which avoids the bunching of the termination of appointments. The President shall be appointed for eight years[3], the Vice-President for four years and the other members, of whom there shall be at least two and not more than four, for between five and eight years. No term of office shall be renewable.

  13.    The independence of the governors of the national central banks is also safeguarded by the provisions of Article 14 of the protocol. These require that the term of office of a governor of a national central bank shall be no less than five years and that he may be removed from office only if he no longer fulfils the conditions required for the performance of his duties or if he has been guilty of serious misconduct. Members of the Executive Board will enjoy similar security of tenure: Article 11.4 of the protocol, in the only provisions dealing with their removal from office, provides that in the same two sets of circumstances the member may be compulsorily retired by the Court of Justice on application by the Governing Council or the Executive Board.

STRUCTURE OF THE ESCB AND DISTRIBUTION OF POWER WITHIN IT

  14.    The composition of the ESCB can be seen as a series of concentric circles. The innermost circle is the full-time Executive Board of the ECB, (the President, the Vice-President and up to four others). Moving outwards, the next circle is the Governing Council of the ECB which comprises the Executive Board members and the governors of the national central banks of the countries in the euro zone. Moving outwards again, the outer circle is the General Council of the ECB whose membership comprises the President and Vice President of the ECB and the governors of the national central banks of the remaining Member States.

  15.    The intended and probable distribution of power within these concentric circles seems fairly clear. Article 11 of the protocol provides that "The Executive Board shall be responsible for the current business of the ECB." Article 12 states that the Executive Board shall implement monetary policy in accordance with the decisions of the Governing Council.

  16.    All important decisions about monetary policy will be taken by the Governing Council of the ECB. Article 12 of the protocol provides that the Governing Council shall formulate the monetary policy of the Community including decisions relating to intermediate monetary objectives and key interest rates. On the Governing Council each of the six members of the Executive Board and each central bank governor normally[4] has one vote and decision is by simple majority, with the president having a casting vote. There will be 11 countries in the euro zone at first, so the central bank governors will outnumber the Executive Board members in the Governing Council.

  17.    The outer circle, the General Council of the ECB, is to contribute to the reporting activities of the ECB, the collection of statistical information, the conditions of employment of the staff of the ECB and certain other matters. The dominant position of the ECB in relation to the ESCB is made clear by the terms of Article 8 of the protocol which state that "the ESCB shall be governed by the decision-making bodies of the ECB". The General Council's lesser status is further emphasised by the provision of Article 47 that it shall "be informed" by the President of the ECB of decisions of the Governing Council: it does not participate in them.

REPORTING ARRANGEMENTS

  18.    Given the degree of political independence provided by the Treaty for the operation and working of the ECB, the arrangements for it to report on its work are of especial interest and significance. Under Article 109b of the Treaty the ECB is required to submit an annual report on the activities of the ESCB and on the monetary policy of the previous and the current year to the European Parliament, the Council and the Commission and to the European Council. The President of the ECB shall present the report to the Council and to the European Parliament which may hold a general debate on it. The President of the ECB and the other members of the Executive Board may be heard by the competent Committees of the European Parliament at the request of the Board or the Parliament.

  19.    Additionally, Article 15 of the protocol requires the ECB to publish reports on the activities of the ESCB "at least quarterly". These quarterly reports and the annual report are to be made available to interested parties free of charge.

  20.    Under Article 10.4 of the protocol the proceedings of meetings of the Governing Council of the ECB shall be confidential although the Governing Council may decide to make public the outcome of its deliberations.

LINKS BETWEEN THE ECB AND THE COUNCIL PRESCRIBED IN THE TREATY

  21.    At meetings of the Governing Council of the ECB the President of the Council of Ministers and a member of the Commission may participate but not vote. In reciprocal fashion, when the Council of Ministers is discussing matters relating to the ESCB the President of the ECB shall be invited to participate.[5]

EXCHANGE RATE POLICY: THE COMMISSION, THE COUNCIL AND THE ESCB

  22.    Article 109(2) of the Treaty provides that the Council, acting by a qualified majority, either on a recommendation from the Commission and after consulting the ECB or on a recommendation from the ECB, may formulate "general orientations" for exchange rate policy in relation to one or more non-community currencies. In a resolution[6] of the Luxembourg European Council of 13 December 1997 the relationships between the Council, the Commission and the ESCB were further elaborated. The resolution stated, "While in general exchange rates should be seen as the outcome of all other economic policies, the Council may, in exceptional circumstances, for example in the case of a clear misalignment, formulate general orientations for exchange rate policy in relation to non-EC currencies . . . These general orientations should always respect the independence of the ESCB and be consistent with the primary objective of the ESCB to maintain price stability."

DIALOGUE BETWEEN THE COUNCIL AND THE ECB INVOLVING THE COMMISSION

  23.    In the same resolution[7] of the Luxembourg European Council the need for close liaison between the Council and ECB was further emphasised. The resolution stated that " . . . the harmonious economic development of the Community in Stage 3 of EMU will call for continuous and fruitful dialogue between the Council and the ECB, involving the Commission and respecting all aspects of the independence of the ESCB."

  24.    Provision for close liaison is made in the Treaty. Under Article 109c an Economic and Financial Committee (EFC) shall be set up. The Member States shall each appoint no more than two members of the EFC as shall the Commission and the ECB. The tasks of the EFC, as set out in this Article, are: to keep under review the economic and financial situation of the Member States and of the Community and to report regularly thereon to the Council and to the Commission; to deliver opinions to the Council and the Commission at their request or on its own initiative; and to contribute to the work of the Council on a range of matters including multi-lateral surveillance[8], the prudential supervision of credit institutions, the volume of the issue of euro coins by Member States and the readiness of a Member State with a derogation to enter the euro zone and to "carry out other advisory and preparatory tasks assigned to it by the Council"[9]. The EFC appears to be intended to have a vital and wide-ranging liaison function bringing together the knowledge and opinions of the Member States, the Commission and the ECB.

CAPITAL AND FOREIGN RESERVE ASSETS OF THE ECB

  25.    The protocol provides in Articles 28-30 for the subscription of the ECB's capital and for the transfer to the ECB of foreign reserve assets. On its establishment, the ECB shall have a capital of ecu[10] 5,000 million subscribed solely by the national central banks of the countries in the euro zone. Foreign reserves up to an amount equivalent to ecu[11] 50,000 million shall be provided to the ECB by the national central banks of the countries of the euro zone. The Governing Council shall decide on the amounts to be called up.

SHARES IN THE CAPITAL AND THE FOREIGN RESERVES CALLED UP

  26.    The shares in the ECB's capital held by each central bank within the euro zone will be determined by a weighting equal to the sum of 50 per cent of its Member State's share of the population of the euro zone in the penultimate year before the ESCB is established and 50 per cent of its Member State's share of the GDP at market prices of the euro zone in the last five years preceding the penultimate year before the ESCB is established.

  27.    Votes in the Governing Council on matters relating to the subscription of capital and the call up of foreign reserves will be weighted according to the national central banks' shares in the subscribed capital of the ECB. In such votes a decision is adopted if the votes in favour represent at least two thirds of the subscribed capital of the ECB and represent at least at least half of the shareholders. In such votes the weights of the votes of the members of the Executive Board shall be zero. This system of weighting seems designed to reassure both the more populous and wealthier countries and the smaller countries that their interests will be safeguarded.

3   The appointment of Wim Duisenberg is for eight years although there is also an understanding that he will voluntarily retire early. This arrangement appears to conform to the text of the Treaty if not the spirit. Back

4   Article 10 of the protocol provides for weighted voting by the central bank governors in the Governing Council where matters concerned with the capital subscription to the ECB, the transfer of foreign reserves assets to the ECB and the allocation of the net profit of the ECB are decided. When votes on these matters take place the weights of the votes of the members of the Executive Board shall be zero. Back

5   Article 109b of the Treaty. Back

6   OJ C 35, 2.2.1998, p. 3. Back

7   OJ C 35, 2.2.1998, p. 3. Back

8   See Article 103 of the Treaty and paragraph 55 of this report. Back

9   Article 109c(2). Back

10   Now euro. Back

11   Now euro. Back