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Shining a light on the dismal science

09:58 July 9th, 2009

Calculators please, gentlemen

Posted by: Krista Hughes
Tags: MacroScope, Uncategorized, , , , , ,

Central bankers in the euro zone will have to get out their dictionaries and calculators to work out how often they are entitled to vote on European Central Bank decisions under a complicated new voting system.

New rules show that the size of a country’s economy, the health of its banking sector and the spelling of its name will all influence how often a governor from one of the euro zone’s national central banks gets to vote on setting ECB interest rates and other crucial policy decisions.

This could make the difference between a governor from a similar-sized economy being sidelined for as little as six months in a three-year period or as many as nine.

The system, set to kick in after three more countries adopt the euro, involves up to four groups of central bankers sharing differing numbers of votes. Votes will rotate every month, compared to the 12-month rotation seen at the U.S. Fed, and the complexity of the rules is mind-boggling.

 ”The Governing Council has decided that the number of governors gaining voting rights at the start of each month will be equal to the difference between the number of governors allocated to the group and the number of voting rights assigned to it, minus two,” the ECB said in its explanation of how it had decided on the rotation rate.

Coloured charts handily included with the announcement make the process somewhat easier to follow for the mathematically-challenged.

Currently there are 16 countries in the euro zone, and the new system is not set to kick in until membership hits 19. So given euro scepticism and budget woes in eastern Europe, policymakers are likely to have five more years to do the math before the test comes.

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