Professor Charles Goodhart

5 JUNE 2007

  Q40  Chairman: I know that you cannot separate economically the question of governance from the question of how the thing works, but, assuming that the governance can be fixed, are there any economic consequences that you would foresee through enlargement of the sort of new high-growth countries that we are thinking about? The last round of entrants.

  Professor Goodhart: Again, I think the questions are really rather more political than economical. It is a question of how far you want to have a club type arrangement, where members are increasingly diverse. Lord Steinberg was raising the point about are the Romanians or the Bulgarians already so diverse in their cultures, standards of living and so on that it might make it difficult. This of course raises the question of Turkey and, indeed, further to the east, countries like the Ukraine. But I do think that this is a realm in which the politician rather than the economist really ought to be the dominant.

  Q41  Chairman: There is no obvious economic reason why, let us say, admitting Bulgaria and Romania to the Eurozone would particularly affect anything.

  Professor Goodhart: The more you get diversity, the harder it is to have redistribution because the flows would be so large that, without a great deal of political fellow feeling ... The Dutch and the Germans, shall we say, are not going to want to want to transfer very large sums to the Turkish and the Bulgarians. I do think it is a political issue rather than an economic issue.

  Q42  Chairman: I was just picking to see if the questions could in any way be separated. If they cannot, they cannot.

  Professor Goodhart: I would not separate them.

  Q43  Chairman: Colleagues, before we let Professor Goodhart go, does anybody have a burning question? I have one that has been left over. We were talking about a dialogue whereby the ECB could fundamentally gain support for its views, where countries would consider what inflation rate they wanted. In the general conduct of the Eurozone would it be helpful if the European Parliament were the place to which the ECB related?

  Professor Goodhart: It does of course relate to it already, but it is a kind of one-way relationship. The President of the ECB comes and addresses the European Parliament and tries to explain what he has been doing and why, but there is nothing the European Parliament can do about it if they do not like it. There is no constraint which the European Parliament can impose on the ECB which is independent to an extraordinary degree of the political framework. There is the question of what are the relative roles of the Executive and the legislature in trying to set the objective. In this country it has been the Executive. If you feel that the Executive cannot agree, then the case may be for having it done by the European Parliament, but that is simply a way of getting a form of majority voting into the process of setting the inflation target. Presumably the European Parliament will never be unanimous.

  Chairman: Thank you very much indeed for coming. It has been the most helpful and comprehensive debate and we do thank you very much.