Monetary Policy in EMU : a Voting-Power Analysis of Coalition Formation in the European Central Bank

On January 1st, 1999, the European Central Bank (ECB) has started operating a common monetary policy on behalf of the 11 founding members of the European Monetary Union (EMU). There is a legitimate concern about the practicalities and the effectiveness of the decision-making process inside the ECB. This paper addresses this concern by using standard measures of voting power (as well as some of their extensions) to quantify what is likely to be the relative influence of individual EMU members on common monetary-policy decisions. Postulating the a priori formation of certain voting coalitions, it shows, among others, that the 6-member Executive Board (EB) can claim, in certain circumstances, voting power of up to 66%, but policy impact of only up to 25%, i.e. respectively much more and much less than its number of votes would imply (6 out of 17, i.e. 35.3%). Also, it is not at all clear that the 6 countries which managed to elect one of their nationals at the EB have an interest in pressing the 6 EB members to vote along national rather than EMU-wide lines, or that EMU member countries with no representative at the EB are necessarily worse off (from a voting-power perspective) when each EB member focuses on his or her own country's developments, rather than on EMU-wide aggregates.