Lithuania’s eurozone accession means diminishing influence for small member states

Changes to the European central bank (ECB) voting system following Lithuania’s adoption of the euro could progressively see small countries get even less of a say, explain Sylvia Merler and Kayleigh Rose Lewis.

As of 1 January 2015, Lithuania becomes the 19th member of the euro area, increasing the number of ECB governing council members to 25 – six executive board members and 19 national central bank governors.

At present, the ECB governing council works under the principle of ‘one man, one vote’ and decisions are taken with simple majority. However, under the new regime, voting rights will invariably rotate every month.

“Under the new regime, voting rights will invariably rotate every month”

As of now, only 15 (out of 19) governors will be given the right to vote every month, while members of the ECB’s executive board – consisting of six members nominated by heads of eurozone governments for an eight year term – will retain permanent voting rights, bringing the total number of votes to 21.

The frequency of each country’s voting will depend on the size of the economy. The members of the governing council will be assigned to groups, depending on the weight of their countries in the euro area economy and financial sector.

Based on this ranking, two groups will be formed; the first includes the governors of the five countries with the largest weight in the single currency area. Presently, the members would be Germany, France, Italy, Spain and the Netherlands. They will share four votes, meaning that each country will miss one vote in every five.

The second group consists of the 14 remaining countries who will now share the remaining 11 votes.

In addition, were the number of euro area members to reach 22, rotation would become more complex and be structured around three groups.

“The frequency of each country’s voting will depend on the size of the economy”

In the long-term this means that countries in group one (the five biggest members) will always retain 80 per voting frequency, no matter how many countries were to eventually join the currency union, but countries in group two will see their voting frequency decrease potentially down to 57 per cent if new members join.

Were the number of countries in the euro area to surpass 22, those in group three (the smallest) would only be allowed to vote at most 50 per cent of the time, and less than 40 per cent in the worst case scenario.

In terms of balance in voting rights, the executive board will permanently have 29 per cent of the votes at each session, the five biggest countries will have 19 per cent of the voting power against 20 per cent in the non-rotating system and small countries will instead have 52 per cent of the votes against 56 per cent at present.

All governors will continue to take part in discussions, and the decision making process will still follow the ‘one man, one vote’ principle, but from now on decisions will only be made among those voters who have the right to vote at any given meeting.

The statute of the European system of central banks and of the ECB envisaged the switch to a rotating system for when the number of euro area countries exceeded 15. However, in December 2008, the governing council decided to defer the decision until the number of governors exceeded 18, now that the number has reached 21 no further delay is possible.

Brian Hayes, a member of parliament’s economic and monetary affairs committee, said, “Firstly Lithuania’s decision to join the euro is good news for the currency after the crisis we all have had to live through in recent years.

“Given the scale of the adjustment in countries like Ireland, Greece and Portugal, I believe it’s important that we do not create some form of second class membership of the ECB”

“It’s a vote of confidence in the currency and we should not lose sight of that. Secondly, it’s not altogether certain that with Lithuania’s entry into the ECB system, that it follows automatically that the current system moves to rotation of board members,” explained the Irish deputy.

However, the Irish deputy warned, “Given the scale of the adjustment in countries like Ireland, Greece and Portugal, I believe it’s important that we do not create some form of second class membership of the ECB.

“Obviously effective decision making is important for the ECB and where governors vote they vote in the first instance to support the euro zone system ahead of any national interests.

“But it is important that full representation, especially for smaller countries applies. Important for perception and important for the credibility of the ECB and its decision making,” he noted.

 

Silvia Merler is an afiliate fellow at Bruegel.

Written for theparliamentmagazine.eu

Posted on August 11, 2014 in News, Politics

Leave a reply

Your email address will not be published. Required fields are marked *

Back to Top