ECB Governance and Monetary Policy in the Enlarged EU

The enlargement of the EU will eventually lead to an enlargement of the Euroarea. Since the accession countries are economically very small, the implications for the ECB will be limited to its decision-making structure. I argue that the enlargementrepresents an opportunity for the ECB to adjust its policy approach and communicationstrategy. Focusing monetary policy decisions explicitly on Euro-zone inflation forecastswill diminish problems associated with the large number of country representativesrelative to Executive Council members on the ECB’s Governing Council. To increaseincentives for country representatives to focus on conditions in the Euro-zone as a whole,the ECB should also publish minutes of monetary policy discussions as well as votingrecords. The other significant monetary policy issue associated with the enlargement of theEMU concerns the monetary policy strategy of the accession countries during the timethey have to spend in the ERM2. Countries that currently target inflation - essentially theCzech Republic, Hungary, and Poland - should maintain this monetary policy strategy.There is little to gain, and potentially a lot to lose, from switching to an exchange ratebased monetary policy.