The ECB and Euro-Area Enlargement

IMF Working Papers, October 1, 2002

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The ECB and Euro-Area Enlargement

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Bibliographic details

• Authors: Helge Berger
• Published: October 1, 2002
• Series: IMF Working Papers
• DOI: https://doi.org/10.5089/9781451858761.001

Summary of findings

• Within less than a decade, the number of member countries in the euro area could more than double.
• The vast majority of accession countries are relatively small in economic terms, compared with current members.
• Absent reforms, such a significant but asymmetric expansion could:
  • Impede the effectiveness of the institutional policymaking process of the European Central Bank (ECB).
  • Be seen by some as resulting in the overrepresentation of small member countries in the ECB Council.
• The paper illustrates these issues, describes principles for reforming the ECB statute, and discusses four specific institutional reform scenarios.
• The analysis coincides with the ECB Council being scheduled to present suggestions for reform by late 2002.

Principles for ECB statute reform (as described)

• Reforms should address the institutional policymaking process to preserve effectiveness with a much larger membership.
• Reforms should respond to concerns about asymmetric expansion and perceived overrepresentation of small member countries.
• The paper outlines underlying principles on which reforms of the ECB statute could build (principles described in the paper; summary here reflects that the paper "describes the principles").

Institutional reform scenarios (overview)

• The paper discusses four specific institutional reform scenarios for the ECB.
• The scenarios are presented as concrete options to adapt the ECB decision-making framework to a substantially enlarged euro area.
• Scenarios are considered against the backdrop of:
  • ECB decision-making framework and process.
  • Concerns about representation on the ECB Council.
  • Implications for the ECB’s reaction function and stabilization effort in the presence of structural inflation and supply shocks.

Policy implications and issues analyzed

• Impact of enlargement on monetary policy decision-making in the euro area.
• Role of business cycle synchronization and differences between accession and current members.
• Potential effects on inflation and the ECB’s ability to stabilize the euro-area economy.
• Relevance for transition countries, Eastern Europe, and accession countries joining the Economic and Monetary Union (EMU).
• Consideration of trade-offs faced by the ECB in dealing with supply shocks and structural inflation in a larger, more heterogeneous membership.

Content in this bundle

• The ECB and Euro-Area Enlargement - WP/02/175
  • The ECB and Euro-Area Enlargement - WP/02/175 (Markdown version)
  • The ECB and Euro-Area Enlargement - WP/02/175 (PDF)