The Making Of The Statute Of The European System Of Central Banks. Chapter 10: Selected ESCB Articles (Cluster III)

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10.1 Introduction
10.2 Genesis of selected articles (cluster III)

Selected articles: Article 10.1 and 10.2a (Composition Governing Council, voting in personal capacity), Article 10.2b-c (‘One person, one vote’), Article 10.3 (Weighted voting), Art. 11.6 (Executive Board responsible for current business of the ECB), Article 12.1a-b (Delineation of responsibilities of Governing Council and Executive Board), Article 12.2 (Executive Board prepares Governing Council meetings), Article 12.3-5 (Some other Governing Council competences).

The genesis of Article 11.1 (Size and composition Executive Board) has been dealt with under Art. 11.2-ESCB, section II.2.

10.1 Introduction

We follow the structure we used before, that is for every article we will look for the main considerations which lay behind its formulation, starting with the relevant parts of the Delors Report, then analyzing the drafts of the Committee of Governors and the outcome of the IGC. This shows which relative powers of the Executive Board and of the governors the drafters had in mind. For each article the description of the genesis is preceded by a general introduction, placing the article in a wider context, and by a short description of the comparable features of the Federal Reserve System, where helpful for understanding the choices made in drafting the ESCB Statute.

The description in this chapter will be as factual as possible. In Chapter 11 we conclude how checks and balances were established and mention a few recent developments, i.e. relating to the voting regime of the Governing Council.

The Committee of Governors designed the draft Statute as a whole. The Commission’s text for a draft Treaty mentioned, apart from the establishment of the ‘Eurofed’ (Commission wording for the ESCB), its tasks and relations with the political authorities, also that the Council of the Bank would be made up of the governors of the NCBs and six Executive Board members, and that voting would take place according to the rules laid down in the Statute. The French draft Treaty text stayed close to the Commission’s text. The German draft repeated as little as possible the ESCB Statute, because the German government had decided to accept the draft ESCB Statute as the outcome of complex negotiations, which should be left as untouched as possible. In its view Treaty texts should not be used as an excuse to reopen the debate on the Statute. The Luxembourg non-paper of June 1991, following the example of the Commission, gave the composition of the Council a place in the Treaty. The Luxembourg presidency added a paragraph describing the powers of the Council of the Bank and the Executive Board, and the compromise found for the use of NCBs in the execution of the tasks of the System (‘to the extent deemed possible and appropriate’). The Dutch presidency, however, decided to duplicate as little as possible the text of the Statute in the Treaty; this implied that articles relating to the internal organization of the System were only mentioned in the Statute.

10.2 Genesis of Selected Articles of the ESCB Statute (CLUSTER III)
Article 10.1 and 10.2, first paragraph

Article 10: The Governing Council

“10.1 In accordance with Article 109a(1) of this Treaty, the Governing Council shall comprise the members of the Executive Board of the ECB and the Governors of the national central banks.

10.2 (first par.) Subject to Article 10.3, only members of the Governing Council present in person shall have the right to vote. By way of derogation from this rule, the Rules of Procedure referred to in Article 12.3 may lay down that members of the Governing Council may cast their vote by means of teleconferencing. These rules shall also provide that a member of the Governing Council who is prevented from voting for a prolonged period may appoint an alternate as a member of the Governing Council.”

(to be read in conjunction with Article 10.2-ESCB, second and third paragraph (Normal voting procedure); Article 10.3-ESCB (Weighted voting); Article 12.1-ESCB, first and second paragraph (Division of competences between Governing Council and Executive Board); Article 12.3-ESCB (Rules of procedure); Article 14.1-ESCB (NCBs) )

I. Introduction
I.1 General introduction
The Governing Council is composed of the governors of the NCBs of the Member States without a derogation [See Art. 43.4-ESCB] and the members of the Executive Board. The Governing Council operates as the highest decision-making body of the eurosystem, which comprises the ECB and the NCBs of the Member States which have adopted the euro.

The composition of the Governing Council reflects the federal character of the ESCB. The federal character is further enhanced by the voting system, where each member of the Governing Council (each governor and each Board member) has one vote. Weighted voting is applied to a limited number of provisions relating to financial matters.

The first paragraph of Art. 10.2 emphasizes that only members of the Governing Council present in person are entitled to vote. Proxy voting is not allowed. This rule underlines that a governor does not ‘represent’ his NCB, he is member ad personam. To be more precise, the governors operate in three capacities related to System functions: as ex-officio members of the Governing Council the governors act in the interest of the euro area as a whole, when deciding on monetary policy and other System functions (ad personam); the governors act as representatives of their NCBs (i.e. as shareholders) when decisions are taken on patrimonial issues; [See Art. 10.3-ESCB]  and at their home NCB they are part of a directorate or board of directors, which is responsible for the implementation at NCB level of the decisions taken by the Governing Council.

The Statute does not provide for alternate members. Only when prevented from voting for a ‘prolonged period’ a governor may appoint an alternate (i.e. someone who carries his/her vote). An exception is made for decisions made on the basis of weighted voting (financial decisions), in which case a governor, when unable to be present, may always appoint a person who carries his vote for that particular issue. In the early days of the system the issue arose
whether accompanying persons were at all allowed to attend Council meetings. It was argued that governors might feel inhibited in the presence of their deputies to speak out openly or change their minds during meetings. This argument did not prevail. It was considered that the governors need an accompanying person in case they have to leave the meetings for a short while, and for an efficient liaison with their own central bank. The accompanying persons attend the meetings, while sitting in a backbench close to their governor. The accompanying persons, like the governors, are not allowed to reveal confidential information to their organizations.

The meetings of the Governing Council can be attended by the president of the Council of Ministers and by a member of the European Commission. They do not have the right to vote. [Art. 109b-EC] Their presence forms part of the external checks and balances.

I.2 Relevant features of the Federal Reserve
The most important decision-making body on monetary policy in the US central banking system is the Federal Open Market Committee (FOMC). It consists of both Board members and presidents of Federal Reserve Banks. The committee consists of the seven members of the Board of Governors and five of the twelve FRB presidents. The president of the FRB of New York is a permanent member; the other presidents serve one-year terms on a rotating basis. [The rotation seats are filled from the four regional group of Banks, one Bank president from each group: Boston, Philadelphia, and Richmond; Cleveland and Chicago; Atlanta, St. Louis, and Dallas; and Minneapolis, Kansas City, and San Francisco].
All presidents participate in FOMC discussions, contributing to the Committee’s assessment of the economy and of policy options, but of these twelve only the five presidents who are members of the Committee vote on policy decisions.
Officially, the representatives of the FRBs may also be first vice-president of a Reserve Bank: “[The FOMC shall consist of the members of the Board of Governors] and five representatives of the Federal Reserve Banks to be selected as hereinafter provided. Such representatives shall be presidents or first vice presidents of Federal reserve banks ….” [FRA (1988), section 12A(a)].
The Federal Reserve Act foresees also in the annual election of alternate members, normally the president of one of the other FRBs of the same group. In practice, however, the FRB representatives are FRB presidents. The only vice-president that sometimes cast his vote as a member of the FOMC is the vice-president of the New York Fed in his capacity as alternate. The FRA does not contain provisions for appointing alternates for absent Board governors.

Every first meeting of the year the Committee elects the chairman and vice-chairman of the FOMC from among its membership, by tradition these are the chairman of the Board of Governors and the president of the New York Fed respectively. The FOMC decides by simple majority. The FOMC must meet ‘at least four times a year’. In practice it meets every six weeks, but it can take decisions in-between meetings. The FOMC decides on open market operations. All other decisions relating to the FRS are taken by the Board of Governors. The FRA does not provide for weighted voting; this is understandable, as the FRBs are not shareholders of the Board of Governors; in fact, it is the other way around: the Board closely supervises the way the FRBs are managed [See Art. 14.3-ESCB, section I.2.] and the seigniorage after deducting costs and additions to general reserves flow to the Treasury.

II.1 History – Delors Committee and before
The idea of a European central bank had been mentioned in the Werner Report (1970). Already then the Federal Reserve System had been thought of as a possible example. The first person to rake up the idea of a European central bank in the ‘80s was the French minister of Finance Balladur. He had in mind a federal system, possibly mustered on the Bundesbank model. In his memorandum of 29 December 1987, which concentrated on ideas to improve the working of the EMS, he also envisaged the creation of a single currency area, ‘in which one and the same currency would serve as a means of payment in all countries and in which a common central bank would exist as well as “federal” banks in every country.’ The German minister of Foreign Affairs, Hans-Dietrich Genscher, took up the discussion on a European currency by issuing a personal memorandum in February 1988. In his memorandum Genscher
referred to the establishment of a European central bank and the need for a statute, but he was not specific on the form. The German minister of Finance, Stoltenberg in a reaction labelled the establishment of an EMU an objective for the long-term. He also mentioned conditions for a possible future European central bank, among which the condition of a balanced relationship between central and federal elements in the decision-making (‘ausgewogenes
Verhältnis von Zentralen und föderativen Elementen bei der Willensbildung’). [See Art. 1-ESCB, section I.1, footnote 2; Art. 7-ESCB, section II.1A; and chapter 8.1.] Therefore, at an early stage there was agreement among the main initiators that the system should be federal.
The Delors Committee took the federal concept as a starting point. In a draft paper, dated 2 December 1988, the first description of the institutional arrangements of the final stage of EMU read as follows: “The Council would be composed of the Board members as well as the Governors of the NCBs and act as policy-making authority.” [CSEMU/5/88, 2 December 1988, p. 16. The same page mentioned that “the Board should have [three to …] members and a Chairman.”] At a meeting of the Delors Committee on 13 December 1988 Pöhl distributed a Bundesbank paper containing a possible outline for the committee’s report. The paper included the main features of a European central bank: [“Outline of a report to the European Council on Economic and Monetary Union (EMU)”.
“- a federative structure of the central bank system, since this corresponds best to the political structure of the Community (e.g. a European Central Bank Council (ECBC) representing all the central banks in the union);
-a centralised body (Directorate) responsible for the implementation of ECBC decisions as far as they apply at Community level;”

It is unclear from this description whether the members of the Directorate (Board) were meant to be members of the Bank’s Council, but later it was clarified that the ESCB Council would be composed of the Governors of the central banks and the members of the Board.
No mentioning was made of the size of the Board. As late as 7 April 1989 (with only one meeting of the Delors Committee to go) Danish governor Hoffmeyer expressed, in a telephone conversation with André Szász (vice-president of the Dutch central bank) his uneasiness about the Board, which ‘undoubtedly’ would come to consist of members from the larger countries on a permanent basis. For this reason Hoffmeyer preferred a Council consisting of only governors of all central banks. Szász reacted that, indeed, that issue had received little attention. However, he added that in his view creating a small Board would create flexibility in daily matters, while the appointment of the Board members by the European Council would add to the democratic legitimacy of the system. Dominance by the big countries could be prevented by deciding that the Council of the ECB, in which all NCBs were present, would determine the ESCB’s general policy.

II.2 History: Committee of Governors and IGC
The first preliminary draft of the ESCB Statute [x – “Legal foundations of the European System of Central Banks”, 11 June 1990].  already contained the idea of a federal board: “[t]he Council shall comprise the Governors of the central banks of the Member States of the Community, the Director-General of the Luxembourg Monetary Institute and the members of the Board of Management.” The formulation would change, but never the concept. The same draft also mentioned: “All members of the Council present in person shall take part in the voting and shall have, for that purpose, one vote (save as otherwise provided  in the Statute).”

In a subsequent draft of 13 July 1990 the word ‘All’ had been put between square brackets.
The brackets referred to two questions:
“- should all the members of the Executive Board have a vote or only the President of the System;
– should all governors have a vote or should there be a system of rotation along the lines of the Federal Reserve.”
The Alternates, who had prepared the draft, had commented to the first indent that “the latter option [i.e. giving only the president the right to vote] was suggested by some Alternates but other Alternates were not inclined to give the President such standing.” It was also suggested to write the details of a possible rotation scheme (‘a constituency arrangement’) in the Rules of Procedure.
The governors agreed in their meeting of 11 September 1990 that all members of the Governing Council would vote. The square brackets around the word ‘all’ were deleted in Article 9.2 In the context of this Article, the Chairman [Pöhl] outlined briefly the contents of his statement made at the ECOFIN meeting in Rome on 8 September 1990 concerning voting procedures. Pöhl had stated that the Committee of Governors had fully recognized that in the final stage monetary policy constituted a collective undertaking. For that reason the Committee of Governors had advocated all NCB governors being ex officio members of the Council. Pöhl had told the Ecofin he rejected weighted voting, because especially in monetary policy decisions such a voting scheme would tend to give too much emphasis to regional considerations, while it should be oriented at the Community as a whole. Furthermore, given the important role that NCB governors were to play in their capacity as Council member, he had propagated that the Council of the System were to be consulted at the time of the appointment of an NCB governor. [See Art. 14.2, section II.1.]
After discussing the possibility of introducing a procedure based on rotating voting, the general consensus reached by the Committee was that such technique would not be appropriate in the context of the System. It was agreed to establish a quorum of two-thirds of the members. Apparently governors had weighed the arguments for weighted and rotating votes, and had rejected them. They conceived of monetary policy as a collective exercise in which the Executive Board could join. At that stage the size of the Board was envisaged to be fixed at most six persons. [xii- See Art. 11.2, section II.2.]. In other words, in their view Board members and NCB governors should act as a collegiate body.

The draft version of 19 October 1990 contained the following wording:
“10.1 The Council shall comprise the President, the Vice President, the other member of the Executive Board and the Governors of the national central banks.
10.2 Subject to Article 10.3, only members of the Council present in person shall have the right to vote. Each member has one vote. Save as otherwise provided for in the Statute, the Council shall act by a simple majority. In the event of a tie, the President shall have the casting vote. In order for the Council to vote, there shall be a quorum of two-thirds of the members.” – – draft 19 October 1990

The Comments add:
“a) There was unanimous agreement to apply the principle of “one person, one vote” for all decisions, except those relating to capital assets and profits (see Article 10.3).
Moreover, it is understood that in the case of the absence of a Governor, the deputy may attend but would not be permitted to vote. The requirement of “present in person” could also mean a Teleconference. Procedures governing these issues should be addressed in the Rules of Procedure.”

This final version of the draft Statute (27 November 1990) would read:
“10.1 The Council shall comprise the President, the Vice President, the other members of the Executive Board and the Governors of the national central banks.
10.2 Subject to Article 10.3, only members of the Council present in person shall have the right to vote. Each member shall have one vote. The Rules of Procedure referred to in Article
12.3 shall provide that a member of the Council who is prevented from voting for a prolonged period may appoint an alternate as a member of the Council.” – draft 27 November 1990

The accompanying Commentary read:
“ The composition and voting procedures of the Council laid down in the Article reflect the federative structure of the System: all national central bank Governors are ex-officio members of the Council which, in addition, will include the President, the Vice President and the other members of the Executive Board. [….]
Article 10.2 requires “presence in person” for voting: this would be met by a teleconference. A delegation of voting powers will only be possible if a member of the Council is prevented from voting for a prolonged period in which case he or she may appoint an alternative as a member of the Council. [xiii- This sentence was added following comments by governor Duisenberg in the meeting of the Committee of Governors on 13 November 1990. This formulation resembles Article 6(3) of the Bundesbank law (Gesetz über die Deutsche Bundesbank): “[….] Die Satzung kann vorsehen, dass die Mitglieder des Zentralbankrats bei nachhaltiger Verhinderung vertreten werden.” According to Art. 4.4 of the Rules of Procedure a prolonged period equals ‘one month or more’.] The emphasis on personal presence underlines that the responsibility for all policy-related decisions rests with the members of the Council.”
During the IGC this text was left basically unchanged, with only some reordening and the remark on teleconferencing being moved from the Commentary to the text of Statute itself.

Article 10.2, second and third paragraph:

Article 10-ESCB: The Governing Council
“10.2 (second and third par.) Subject to Articles 10.3 and 11.3, each member of the Governing Council shall have one vote. Save as otherwise provided for in this Statute, the Governing Council shall act by a simple majority. In the event of a tie, the President shall have the casting vote.
In order for the Governing Council to vote, there shall be a quorum of two-thirds of the members. If the quorum is not met, the President may convene an extraordinary meeting at which decisions may be taken without regard to the quorum.”
(to be read in conjunction with Articles 10.1- and 10.2-ESCB, first paragraph (Composition Governing Council and voting ad personam); Article 10.3-ESCB (Weighted voting); Article 11.1-ESCB (Size Executive Board); Article 12.1a-ESCB (Responsibilities Governing Council and Executive Board); Article 12.2 (Executive Board prepares Governing Council))

I. Introduction 
I.1 General introduction
This article determines largely how decision-making power is divided between the centre and the other elements of the system. The negotiations concentrated on three related questions:
would the de facto monopoly of monetary decision-making by the Bundesbank be transferred to a new central, independent institution, or would it also be shared with the other NCBs and, if so, would it be shared equally among them. None of these questions were foregone conclusions, as indeed weighted voting was considered as one of the possible outcomes by participants in the negotiations. Related questions were whether to make a distinction between
voting on policy-related issues and financial issues (touching upon the relative financial interests of the NCBs) and whether the size of the Executive Board should be large or small.
A final observation as to the role of voting is that until now (early 2004) the ECB has taken most of its decisions on the basis of consensus, only in exceptional circumstances ressorting to voting. In this sense the Governing Council has not only acted as a collegiate body, but also as a consensus body, which was considered a welcome and important development in the formative years of the ECB by its first president, Duisenberg. The ECB has been able to
combine effective decision-making and effective monetary policy with a consensus culture. Consensus is not the same as unanimity, it refers to a willingness to accept a ‘majority’ view, in which arguments are weighed and not votes, or the number of votes. [To give an example: under a voting regime six votes in favour win from five votes against, while under the consensus approach it would matter how strong views are held. This could lead to a better outcome, depending on the quality of the chairman, a safeguard in that respect being that members could always request that a vote be taken (ECB Rules of Procedure, Art. 4.2). See also chapter 11.3.]

Because the drafters of the ESCB Statute, having a federal system in mind, often made reference to the FOMC of the Federal Reserve System, we will pay some special attention to the origins of the voting procedure of the FOMC.

I.2 Relevant features of the Federal Reserve System
In 1913 US Congress designed a central banking system with centralized and decentralized elements. The system consisted of the Federal Reserve Board and twelve (local) Federal Reserve Banks. The Board was established as a central body of which the members were either appointed by the president (five of the seven members) or were officials of the Treasury (the Secretary of the Treasury and the Comptroller of the Currency). The FRB presidents were not represented at the Board. The Treasury officials were replaced by president-appointed members in 1935. The drafters of the FRA also paid attention to the checks and balances within the Board, which could have repercussions on the whole system. They made an effort that the Federal Reserve Board itself would not be dominated by only financial or East coast interests, though at the same time ensuring a minimum of professional expertise.
The FRA of 1913 stipulated that the President, in selecting and appointing the Board members shall have “due regard to a fair representation of the different commercial, industrial and geographical divisions of the country. [….] Of the five members appointed by the President at least two shall be persons experienced in banking or finance.” [Section 10, FRA (1913). In 1935 this was reformulated as: “due regard to a fair representation of the financial,
agricultural, industrial, and commercial interests, and geographical divisions of the country.” (Section 10(1), FRA (1988).) The Federal Reserve Board was renamed into Board of Governors.]
The FRA of 1913 mentioned that the Secretary of the Treasury, the Secretary of Agriculture and the Comptroller of the Currency (the “Organization Committee”) should designate Federal Reserve cities and divide the US into corresponding districts. [The Organization Committee finished its job early 1914. (This explains why the names of the districts would only appear in the FRA at the occasion of the Bank Act of 1935, when the rotation system for the FOMC was established.) The Organization Committee based its decision on the outcome of a poll held among national banks and inter alia on the following basic criteria: the ability of member banks within a district to provide the necessary capital for their FRB (at least 4 mln dollar), the fair and equitable division of the available capital for the FRBs among the districts, geographic factors and the existing network of transportation (the famous ‘one-night train ride’: every bank should be within one-night train ride from a FRB or a branch), population and area). (C.H. Moore (1990), p.17.)]

The Senate had decided that the number of districts should be between eight (Republican preference) and
twelve (preference of the Democrats – [However, not all Democrats shared this view. Warburg (Democrat and investment banker, originally from German Hamburg) considered twelve was too much: ‘A large number of banks (….) would increase the danger that they would exhibit a purely local and parochial point of view and that, in consequence, so far from assisting the Board in formulating a national policy, the small banks would stress their local views, and, by doing so, confuse and resist the Board instead of aiding it.’ (Warburg (1930), Volume I, p.426.) It is clear Warburg, a seasoned international banker, took a national (and not a regional) view of monetary policy. ). The Organization Committee decided for twelve reserve cities.]
It is clear from these numbers (‘at most twelve’) that districts had to encompass more than one state (in 1913 the US consisted already of more than 45 states). In fact, in many cases the district lines do not even follow state border lines, but cut through them. Indeed, not only were small States not given their own reserve bank, neither was any State given its own reserve bank, which means that FRBs, unlike NCBs in the euro area, cannot be associated with a political constituency. They are more detached from regional politics.

Until 1935 the Board had only coordinating power in respect to open market operations, which had become the most important tool for managing the liquidity of the banking system.
This changed with the Banking Act of 1935, which gave the Board of Governors a majority vote in the open market committee. The FOMC would henceforth consist of the (seven) members of the Board members and five representatives of the FRBs. Since 1942 the FRBs are divided over five groups: (1) New York, (2) Boston, Philadelphia, and Richmond, (3) Cleveland and Chicago, (4) Atlanta, Dallas, and St. Louis, and (5) Minneapolis, Kansas City, and San Francisco. In the years 1936 to 1942 New York had been part of a group too. [The Annual Reports of the Board of Governors over 1937 and later show the following groups: (1) New York and Boston; (2) Philadelphia and Cleveland; (3) Richmond, Atlanta and Dallas; (4) Chicago and St. Louis; and (5) Minneapolis, Kansas City and San Francisco. In practice, each group used an equal rotation scheme, except the first group, because the president of New York was always elected, with the president of Boston always being elected alternate. This changed in 1942 when New York became a group on its own. We quote the Board’s Annual Report of 1942 (p. 56): “By an Act of Congress, approved July 7, 1942, [….]. Under the law as amended one member of the Committee is elected annually by the [board of] directors of the Reserve Banks in each of the following groups: (1) New York, (2) Boston, Philadelphia, and Richmond, (3) Cleveland and Chicago, (4) Atlanta, Dallas, and St. Louis, and (5) Minneapolis, Kansas City, and San Francisco. This arrangement makes provision for continuous representation of the FRB of New York on the FOMC. This is for the reason that the New York Bank is in the principal capital market and acts as the agent for the FOMC in the operation of the System open-market account.” We mention this to show that – unlike usually is assumed – the voting frequency is not directly determined by the economic size of the reserve bank district. E.g. see GAO (1996), table 4.3 for State population shares in 1910.]

The non-voting presidents are also present and participate in the discussions of the FOMC. Each group elects each year from amidst itself the president which will be FOMC member for that year. The by-laws provide that members representing Banks do not serve as representatives of the particular Banks that elected them nor are they to be instructed by the boards of those Banks. [Friedman and Schwartz (1963), p. 446n.]

In practice, the FRBs rotate within their group on an equal basis. Looking at the composition of the groups it occurs that each group (both before and after 1942) exists of adjacent districts. This minimizes the risk that in one year for instance only Eastern states would have a vote. Also, chances of coalitions of economically similar districts seem remote with the present group composition, see table 10-1. [See also Fase and Vanthoor (2000), p. 24.7]

History shows that the main aim of the present composition of the FOMC was to end the dominance of the New York Fed, which had risen to power because it harboured the largest financial markets and because before 1935 the Federal Reserve Board lacked power in the area of open market operations. While Board members became permanent member of the FOMC, membership of the FRB presidents is rotating and with it the right to vote. However, all FRB presidents participate in the discussion, creating a collegial atmosphere. Voting rights are unweighted. It should be noted though that the Board members do not vote as a block. [For more on the FOMC’s decision-making process, see Art. 11.6 and 12.2, section I.2.]
Dissenters come from both the FRBs and the Board itself. Since March 2002 the votes of the FOMC members are made public immediately after the FOMC meeting (for dissenters their proposal is shown as well). In practice, dissenting opinions are the exception.

Table 10-1 ~ Click to enlarge

Comparing the Fed and the ESCB
In the US the FRBs were meant to allow for regional aspects in monetary policy (nowadays one could say: their presence in the FOMC adds relief to the overall federal picture). FRBs were also meant to prevent dominance by the centre – which becomes clearer if one considers the original design of the FRS, with the centre being more or less a regulatory agency with powers to control FRBs, e.g. with respect to the discount rate, but without powers to make policy itself. Both the Republicans and the Democrats were reluctant to create a strong centre, the former because they feared the centre could become dominated by the government, the latter because they feared the Board could collude with the powerful eastern district banks.
Only as of 1935 did the Board receive voting power for setting monetary policy, namely when the Board members became member of the FOMC. However, voting does not take place along the lines ‘Board versus regional banks’. [During 2000 and most of 2001 the Board of Governors functioned with at least two vacancies, implying that during that period the Board members lost their ‘majority’. (See J. Berry (2001), and Board of Governors Annual Report 2001, p. 335.) This did not stir large upheaval, underlining that the FOMC is not characterized by two permanent camps along these lines.]

In contrast, when the European central bank system was designed, attention in the Committee of Governors focussed on the question whether the NCBs of larger Member States should receive relatively more voting power, and focussed less on the power of the Executive Board vis-à-vis the governors. These issues are connected though, because in case of weighted votes the problem would arise how to weigh the votes of the Executive Board members (while also
creating a situation in which they would start voting as a block). In fact, the issue never arose, as the governors opted for ‘one person, one vote’. Weighted voting was considered to introduce undesirable national elements, not befitting a collegiate body. For financial issues an exception was made – see Art. 10.3-ESCB.

II.1 History: Delors Committee
The Werner Report of 1970 mentioned the establishment of a ‘Community system of central banks’, but did not deal with the internal organization of such a system. In the proposals/memoranda of early 1988, which revived the discussion on EMU, voting rights were not yet an issue. Stoltenberg in his memorandum of 15 March 1988 for example merely noted that “The decision-making process must strike the proper balance between central and federative elements.” [HWWA (1993), p. 310-312] The Bundesbank, however, took a clear position at an early stage that all participating Member States should be represented in the decision-making, with the votes of the NCBs weighted to their economic position. [Contribution by Pöhl to the Delors Committee (section II.B(3)), as annexed to the Delors Report: “All member countries would need to be represented in the monetary policy decision-making body, with voting power being weighted in the light of the economic importance of the member countries.”]

The Delors Report consequently started with the assumption of weighted voting (though in the end the Report evaded the question, just mentioning that the modalities of voting procedures of the ESCB Council would have to be provided for in the Treaty). In a paper dated October 26 1988 Niels Thygesen, one of the expert members of the committee, however, advanced that “weighted voting as practised in purely intergovernmental cooperation” would be difficult to reconcile with the participation of European-nominated members of the Board along with the national central bank governors in one collegiate body.[According to the paper of Thygesen Pöhl had in mind weighted voting according to the procedures followed in the Council of Ministers.]
Thygesen saw more merit in a rotation scheme as used in the FOMC, though also not without hesitations: “A literal translation of these provisions could imply, if all present EC- members were to participate, that the President of the Bundesbank had a permanent vote, the Governors of the four next largest central banks a vote every other year and the governors of the six smaller central banks a vote every third year. The procedure may appear undesirably
discriminatory, even when it is recognized that all governors will be present at the meetings.”
However, we have seen in the description of the procedures in the FRS that ‘size’ is not the relevant criterium for the rotation scheme in the FOMC [This is a mistake often made, not only by Thygesen, but e.g. also by Giscard/Schmidt in their ‘Programma pour l’Action’ (March 1988), prepared by the Comité pour l’Union Monétaire de l’Europe, which committee was chaired by them.], but the special position of New York as the only financial market connected well enough to all parts of the country, i.e. de facto the only serious place for open market operations. It cannot be said that the rotation frequency for the other FRBs is a function of their relative economic size (see section I.1 above). Nonetheless, smaller countries were almost ready to accept such an outcome. For instance, internal documents of the Dutch central bank [An internal note, prepared for the board of directors of the Nederlandsche Bank (4 November 1988), said: “For us it is an essential interest that all governors participate in this body on a permanent basis, and not the smaller countries only on a rotating basis. A consequence of this would indeed be that weighting of votes will be necessary.”] showed a readiness to accept weighted voting, if that would be the price for a permanent presence in the ESCB Council.

In the Skeleton Report of 2 December 1988 a first attempt was made to draft a text on the internal organization of the ESCB:
“- the system must reflect the federal structure of the Community. This implies an organization [perhaps analogous to the US Federal Reserve System] which, through appropriate representation [and weighted voting procedures] in governing bodies, ensures that the interests of all national central banks are adequately taken into account. [….] The Council would meet regularly [every two weeks] and …. its decisions would be made on the basis [of
weighted voting reflecting the relative importance of national central banks?]” –
CSEMU/5/88, December 1988 [CSEMU/5/88, par. II.4]

This draft was discussed during the meeting of the Committee on 13 December 1988, on which occasion Pöhl distributed a Bundesbank note, called “Outline of a Report to the European Council on Economic and Monetary Union (EMU)”. This document contained no direct reference to weighted or non-weighted voting. In the next draft of the Delors Report, that of 31 January 1989, [CSEMU/10/89] the reference to the voting procedures was deleted. This might just have been a consequence of copying parts of the text distributed by Pöhl into the draft Report.

The draft version of the Delors Report of 31 March 1989 again contained a reference to weighted voting:
“Structure and organization
– a federative structure, since this would correspond best to the political structure of the Community;
– establishment of a ESCB Council (composed of the Governors of the central banks and the members of the Board), which would be responsible for the formulation of and decision on the thrust of monetary policy; decisions would be made by weighted majority vote”. –
CSEMU/14/89, March 1989 [CSEMU/14/89, par. 33]

During the last discussion in the Delors Committee on 11-12 April 1989, the word ‘weighted’ was first put between brackets and finally dropped and it was decided to add a sentence saying that the modalities of the voting procedures would have to be provided for in the Treaty. Apparently the members of the Delors group considered it wise to leave this highly sensitive and political issue for later negotiations. On the other hand, they may have doubted
themselves whether weighted voting would add to strength of the System, because unweighted voting could be seen as conducive to establishing unity in monetary policy.

The final text as agreed at 12 April 1989 read:
“Structure and organization
– A federative structure, since this would correspond best to the political diversity of the Community;
– establishment of an ESCB Council (composed of the Governors of the central banks and the members of the Board, the latter to be appointed by the European Council), which would be responsible for the formulation of and decisions on the thrust of monetary policy; modalities of voting procedures would have to be provided for in the Treaty.” –
final Delors Report, par. 32

II.2 History: Committee of Governors and Monetary Committee
There would be an intense debate on the issue both in the Committee of Governors and the Monetary Committee, which in view of the political sensitivities got involved as well. The discussion in the Committee of Governors was sometimes intense and difficult, especially on the part of the Germans, who started the discussion with the aim to achieve some sort of weighting. During the discussions they changed position several times. In the end the draft Statute would contain the principle of one man, one vote.

Monetary Committee discussion in 1990
It is interesting to see how country positions evolved in the Monetary Committee on the question of voting procedures. In January 1990 Pöhl had given an interview to the German magazine Die Zeit, in which he had expressed a preference for an unweighted ‘one man, one vote’ rule combined with a rotation scheme as used in the US Federal Open Market Committee. Pöhl might have considered this to be an indirect form of weighted voting, as for him the FOMC system probably stood for differentiated voting frequencies, allowing large NCBs to vote more often, but he had moved away from the preference of ‘weighted votes’. In the meeting of the Monetary Committee on 6 February 1990 Tietmeyer (who had changed job from the Ministry of Finance to the Bundesbank) took the position that governors should not decide on the basis of weighted votes, because that would make them feel too much representatives of national interests. His view was shared among others by Crockett (Bank of England). At the end of this discussion chairman Sarcinelli concluded the Committee was inclined to favour a one man-one vote system, because weighted votes would lead to too much identification with national interests. An interim version of their report was discussed during the informal Ecofin meeting in Ashford on 31 March, 1990. [Monetary Committee, ‘Report on EMU – beyond stage 1’, printed in Agence Europe (1990), No. 1609, 3 April 1990, especially par. 30] The report advocated that “within the ESCB Council, each member should have one vote and decisions should normally be taken by simple majority”, thus also excluding (possibly differentiated) rotation.

An interesting meeting took place within the Coreper (the Committee of Permanent Representatives of the Council of Ministers in Brussels) on 23 May 1990. The Commission had presented a document (‘Economic and Monetary Union: Institutional note’) in which it had proposed that the votes of the governors should be equal to the votes used in the Council of Ministers, implying for example for each large country (Germany, France, UK and Italy) 10 votes, for Spain 8 votes, for the Netherlands 5 votes etcetera (74 votes in total). The Executive Board would receive 30 votes as a group. This approach was rejected, inter alia on the basis of a new argument relating to the System’s desired independence. The Portuguese and Belgian delegations stated that weighted voting “was hard to reconcile with the independence of the central bank.” This meant a link was made from weighted voting to national interests and the risk of national political pressure. Germany and Denmark also favoured one man, one vote. The Dutch ambassador, who apparently did not exclude the outcome could still tilt towards weighted voting, mentioned the possibility of looking at the weights used in the ecu basket. Internally the Netherlands had decided that any weighing of votes within the ESCB should be based not on political weights (related to population size), but on financial indicators. Nonetheless, the Commission tabled its document at the informal Ecofin meeting of 11 June 1990. However, Commission president Delors, also indicated that the principle of ‘one man, one vote’ would not be unacceptable to the Commission. The chairman of the Committee of Governors, Pöhl, cautiously stated that the issue was still under discussion among the governors. An important factor for the governors was to prevent that the distribution of votes would lead to ‘regionalization’, which would be inconsistent with the required independence of the eurosystem. Sarcinelli repeated that the members of the Monetary Committee supported the one man, one vote principle.

However, in the meeting of the Monetary Committee on 16 July 1990 Tietmeyer again moved away from the consensus in the committee on the one man-one vote principle. He said he wanted to keep open the option of weighted voting or rotating voting rights, to prevent a weak position of the Executive Board vis-à-vis the national governors. In this context Tietmeyer also put forward the possibility to give the Executive Board final responsibility for certain matters to be clearly defined. In other words, he viewed a strong Executive Board as an instrument which would create quickly a European set of mind in the governing body of the ESCB. The Bundesbank apparently had come to the conclusion that a strong centre was important to safeguard the position of the new central bank and to safeguard unity in monetary policy-making. Weighted/rotating voting became an instrument not only to defend ‘national interests’, but also to defend the interest of the centre!

In light of the German second thoughts the Monetary Committee could not reach agreement and left the decision to political authorities. The final version of the report of the Monetary Committee read, as regards the internal structure:
“[….] Within the ESCB Council, each member should have one vote and decisions should normally be taken by simple majority; some members felt that other possibilities may also have to be considered.” – Monetary Committee 19 July 1990 [Monetary Committee, ‘Economic and Monetary Union beyond Stage 1 – Orientation for the preparation of the Intergovernmental Conference’ of 19 July 1990. Published in HWWA (1993).]

Committee of Alternates/Governors
Against the backdrop of the discussion in the Monetary Committee and partly parallel, the Alternates of the Governors discussed the issue of voting procedures on 28 May 1990. At that stage all Alternates (including Rieke of the Bundesbank) supported the notion of one man-one vote, although there was agreement that eventually the issue was a political one and should be reserved for the political authorities. The first rough draft of the draft ESCB Statute introduces the one man, one vote principle in the text as follows:
“8.1 All members of the Council [consisting of the governors and the board members] present in person shall take part in the voting and shall have, for that purpose, one vote (save as otherwise provided in the Statute)” – draft 11 June 1990

On 18 June 1990 this text was discussed by the Alternates for the first time. Lagayette of the Banque de France requested to leave open two options: one man-one vote (his personal preference) and weighting of votes based on the capital share of each respective national central bank. Rieke supported him, in a rare display of internal Bundesbank dissent, referring to the fact that, regrettably, Pöhl had reopened the discussion. Crockett saw this as a re-
introduction of national interests in monetary policy-making, which he regretted as well. In his view the common objective of price stability is more important than national interests.
Nonetheless, the text was amended to read as follows:
“9.2 All members of the Council present in person shall take part in the voting. Save as otherwise provided for in the Statutes, the Council shall act by simple majority, each member having [one vote].” – draft 22 June 1990

During the next Alternates meeting (29 June 1990) Dini of the Banca d’Italia suggested that on the part of the Executive Board only the president should be allowed to vote in the Governing Council, the other board members just being experts (like is the case in the Banca d’Italia). However, Szász (Dutch central bank), Crockett and Tietmeyer favoured the Executive Board to act as a collegiate body with the president being primus inter pares.
Tietmeyer proposed a rotation system for the voting rights (like in the US) in order to give more leverage to the Executive Board. Szász however warned that the wish to leave open the option of weighted voting contradicted the character of an organization which was designed as a supranational and not as an intergovernmental organization.

In a meeting of the Committee of Governors on 10 July 1990 the UK governor defended the one man, one vote-principle, his main argument being that a weighted vote would not be consistent with the spirit of co-operation. Central bank governors should not be delegates of their countries, but should take a corporate, objective view of Community monetary policy.
The French governor observed that the acceptance of a ‘one man, one vote’ system was a major step. If the institution was not to be regarded as a representation of different intergovernmental alliances, it would indeed be more logical to have a vote system based on ‘one man, one vote’. He said that in an organization such as the IMF, whose membership consisted of a large number a countries, a system of ‘one man one vote’ would have been totally impracticable. However, the situation with regard to the system was very different (fewer members and a common monetary objective). The governors of these two large countries supported the ‘one man, one vote’ system despite the fact that their voting power would be considerably less than under a weighted voting system. (One could speculate about their motives: they clearly argued in the interest of the system; but they might also have feared that weighted voting would, or could, lead to a situation of continued national political pressure. ‘One man, one vote’ would be the best guarantee for themselves being able to operate independently. The Bundesbank, coming from a tradition of much more independence, would have been less exposed to such a risk.) Pöhl nonetheless wanted to keep open the option of a voting system based on rotation. The governors agreed that the issue was politically very sensitive and could probably only be resolved in a political forum. The amended text read:
“8.2 [All] members of the Council present in person shall have the right to vote. Each member has one vote [a weighted vote]. Save as otherwise provided in the Statute, the Council shall act by a simple majority. In the event of a tie, the President shall have the casting vote.” – draft 13 July 1990

The brackets around ‘all’ referred to the question: should all members of the Board have a vote (or only the President) and should all governors have a vote or should there be a rotating system along the lines of the Federal Reserve? The discussions came to a head at the meeting of the Alternates on 20 July, 1990. Tietmeyer explained he was thinking of a constituency system like in the IMF: the large countries would have a permanent seat, the smaller ones would form constituencies. This would reduce the number of voting governors and would strengthen the hand of the Executive Board. Borges (Portuguese central bank) stated that rejection of the one man, one vote principle could be a reason for a Member State not to sign the Treaty. Tietmeyer indicated that his ulterior motive was to create a strong Executive Board. He saw a link with Article 12.1a-ESCB, which dealt with the division of labour between the Executive Board and the Governing Council. Therefore, for the Bundesbank three conflicting factors played a role: first, they must have realized the increased risk of political interference in case of weighted (or non-equal) voting; second, they stood to lose relatively most in terms of influence when accepting the ‘one man, one vote’ principle; and third, they were concerned about the position of the Executive Board, which they feared could become too weak.

In the meantime the Commission had adapted to the generally held view. On 21 August 1990 it published a document,’ [European Commission, ‘Economic and Monetary Union’ (Sec(90)1659 final), p. 14, published in HWWA (1993)] which described that the Eurofed would decide “by simple majority of its members’ votes (one man, one vote).”
In the informal Ecofin meeting in Rome on 8 September 1990 Pöhl in his capacity of chairman reporting on the progress made by the Governors in drafting a Statute of the System, endorsed the principle of one man, one vote: “Except for very specific decisions, such as those relating to capital subscription and profit distribution, we have rejected the use of weighted voting; especially in monetary policy decisions such a voting scheme would tend to give too much emphasis to regional considerations and would thus weaken a decision-making process which must orient itself exclusively at the requirements for the Community as a whole.” [Statement by President Pöhl on the Statute of the System at the Ecofin meeting on 7 July 1990 (distributed at the Ecofin meeting)] At the same meeting Waigel took a similar line, warning that the ESCB “should not have a regional orientation”. Pöhl had probably weighed the arguments mentioned above and had come out against weighted voting, but not yet against rotating votes. At the same time he had set his mind to creating a strong role of Executive Board, to which end he would submit a proposal to the Committee of Governors, containing a compromise proposal for Art.12.1a-ESCB.

The minutes of the governors’ meeting on 11 September 1990 show that ‘after discussing the possibility of introducing a procedure based on rotating voting, the general consensus reached in the Committee was that such a technique would not be appropriate in the context of the System.’ It was decided that all members of the Council of the System (i.e. including all members of the Executive Board) should have a vote.[It was also decided that decisions would normally require a quorum of two-thirds of the members. It was furthermore decided that weighted voting would be applied to financial matters – see Art. 10.3-ESCB. The weights would be based on the capital key, with the Board members having a ‘zero weight’.] Subsequently the committee discussed Pöhl’s compromise proposal for Art. 12.1a. His proposal would be more or less endorsed by the governors – though afterwards the Bundesbank set out to strengthen the position of the Executive Board by proposing to endow the Executive Board with ‘own’, irrevocable (i.e. non-delegated) powers.[See description of Art. 12.1a-ESCB below.]

In the end Article 10.2 of the draft of the ESCB Statute of 27 November 1990 would read:
“10.2 Subject to Article 10.3, only members of the Council present in person shall have the right to vote. Each member shall have one vote. The Rules of Procedure referred to in Article 12.3 shall provide that a member of the Council who is prevented from voting for a prolonged period may appoint an alternate as a member of the Council.
Save as otherwise provided for in the Statute, the Council shall act by a simple majority. In the event of a tie, the President shall have the casting vote.
In order for the Council to vote, there shall be a quorum of two-thirds of the members. If the quorum is not met, the President may convoke an extraordinary meeting at which decisions may be taken without regard to the quorum referred to above.” –
draft 27 November 1990

The accompanying Commentary explains that “each member of the Council has the right to vote. The principle of “one person, one vote” will apply to all decisions except those relating to capital, assets and profits (see Article 28). This principle strengthens the decision-making process which must be oriented exclusively towards the requirements for the Community as a whole. [….]”

II.3. History: IGC
With regard to the voting system, the Commission’s draft Treaty of 10 December 1990 contained the following text:
“107.5 The Council of the Bank shall adopt its decisions by a majority vote of its members. The conditions governing the casting of the votes by the members of the Executive Board are laid down in the Statute of the Eurofed and the European Central Bank.” – Commission draft 10 December 1990

The Commission’s accompanying commentary showed the Commission assumed a ‘one man, one vote’ system. According to the Commission “this rule reflects Eurofed’s federal character while, at the same time, reinforcing the decision-making process and emphasizing that the members of the Council are responsible to the Community as a whole.”
The French draft proposal of 25 January 1991 showed a striking resemblence with the Commission’s draft, while the German draft Treaty of 26 February 1991 refrained as much as possible from mentioning details of the ESCB in the Treaty.
The Luxembourg presidency would follow the German approach in this respect and not mention the voting procedure in the Treaty. Under the Luxembourg presidency the ESCB Statute was discussed at two occasions, which led only to a few minor changes. The ‘one man, one vote’ principle was left untouched.
In the consolidated text of the Luxembourg presidency the article read:
“ 10.2 Subject to Article 10.3, only members of the Council of the ECB present in person shall have the right to vote. The Rules of Procedure referred to in Article 12.3 shall provide that a member of the Council of the ECB who is prevented from voting for a prolonged period may appoint an alternate as a member of the Council of the ECB. Subject to Article 10.3 and 11.3 each member shall have one vote. Save as otherwise provided for in this Statute, the Council of the ECB shall act by a simple majority. In the event of a tie, the President shall have the casting vote.
In order for the Council of the ECB to vote, there shall be a quorum of two-thirds of the members. If the quorum is not met, the President may convoke an extraordinary meeting at which decisions may be taken without regard to the quorum referred to above.”
– Luxembourg presidency 6 June 1991

There are two differences with the text of the governors. First, the sentence on the voting principle had been moved from the second to the first paragraph, while a cross-reference was inserted to Article 11.3, which specifies that the Executive Board members will not have a right to vote on matters relating to the terms and conditions of their employment. Second, the ‘Council’ is referred to as the ‘Council of the ECB’, to distinguish it from the Council of Ministers (in the Treaty the Council of Ministers is usually referred to as the Council).
During the Dutch presidency the name ‘Council of the ECB’ would be replaced by ’Governing Council’ [The name ‘Governing Council’ first appeared in UEM/66/91 and UEM/67/91 of the Dutch presidency, dated 25 and 26 September 1991 respectively. Already in the deputies IGC meeting of 12 March 1991 different names had been discussed. At that occasion the name ‘Governing Board’ or ‘Court’, suggested by Wicks of the UK Treasury, had met some, though not general sympathy] and the possibility of holding a teleconference was integrated in the text of Article 10.2.

Article 10.3:
Article 10-ESCB (The Governing Council):
“10.3 For any decision to be taken under Articles 28, 29, 30, 32, 33 and 51, the votes in the Governing Council shall be weighted according to the national central banks’ shares in the subscribed capital of the ECB. The weights of the votes of the members of the Executive Board shall be zero. A decision requiring a qualified majority shall be adopted if the votes cast in favour represent at least two-thirds of the subscribed capital of the ECB and represent at least half of the shareholders. If a Governor is unable to be present, he may nominate an alternate to cast his weighted vote.”

(to be read in conjunction with Article 10.2-ESCB (Non-weighted voting); Articles 26-33-ESCB (Financial provisions); Article 48-ESCB (Subscribed capital for derogation NCBs); Article 51-ESCB (Smoothing of monetary income redistribution); for voting rules in the Executive Board, see Article 11.5-ESCB)

I. Introduction
I.1 General introduction

The NCBs are shareholders of the ECB. To an extent they are also stakeholders in each other, because they share their monetary income as calculated under Art. 32, defined as net income generated by assets held against their monetary liability base, basically banknotes. [See for a description De Nederlandsche Bank, Annual Report 2002, p. 170.] Weighted voting is reserved for decisions of a ‘patrimonial’ nature. Decisions of the Governing Council which either involve the transfer of assets (capital or foreign reserves) to the ECB or affect the NCBs’ relative financial positions are financial decisions of a patrimonial nature. These decisions are, for that reason, taken by weighted voting. [The word ‘patrimonial’ appears in the Commentary to the draft ESCB Statute of 27 November 1990. It is not defined, other than by referring to the articles to which it applies. The above interpretation of ‘patrimonial’ (i.e. relating to their relative income positions or to the transfer of assets) is compatible with the list of articles enumerated in Art. 10.3, as some articles (Art. 28, 30 and 33) relate to the transfer of financial assets or the retention of profits (which could be seen as a capital transfer too), while the other articles (Art. 29, 32 and 51) relate to NCBs’ relative positions, either through the determination of the capital key shares or the calculation and allocation of monetary income. (The word allocation is used, because it does not relate to the distribution of profits, but it is a (re)allocation of income.)] In these cases the governors act as shareholders with weights directly based on the shares of their NCBs in the ECB’s capital. On patrimonial decisions the Executive Board members have zero weighted votes, as they are no shareholders. Most of the weighted decisions are taken by simple majority, some require a qualified weighted majority when related to decisions of an exceptional nature, like increasing the ECB’s capital (Art. 28) or using an alternative method for calculating monetary income (Art. 32.3).[If not specified to the contrary weighted voting is taken by simple majority. This follows from Art. 10.2, second paragraph: ‘Save as otherwise provided for in this Statute, the Governing Council shall act by simple majority.’] The governors do not use weighted voting when they decide on the budget of the ECB, as the expenses incurred by the ECB do not affect, other than marginally, their relative shares. Indeed, otherwise each decision e.g. to intervene or to develop physical operational infrastructures and even all policy decisions would then have to be subject to weighted voting, because all these decisions affect the profits of the ECB, and thus indirectly the profits of the NCBs. This explains why budgettary matters do not figure in the list of articles mentioned in Art. 10.3, which is a limitative list, implying the Executive Board members vote alongside the governors on matters relating to the ECB’s budget. [The Governing Council could delegate the budget to the Executive Board, but it has not done so – see Art. 12.3-ESCB and Art. 15 of the Rules of Procedure, which are adopted by the Governing Council.]

The Committee of Governors left a few important financial decisions to the political bodies, such as the size of the foreign reserve transfer, the size of the ECB’s capital and the NCBs’ shares in the capital, which would function inter alia as the key for weighted voting. The governors also saw a need for political approval for increasing the amount of transferred foreign reserves (Art. 30.4), because (in their words) ‘such calls are indeterminate in size. [Commentary to the draft ESCB Statute of 27 November 1990.]

However, they did not apply this reasoning to Art. 28.1, which article allows to increase the ECB’s capital. The governors described this right to increase the ECB’s capital as ‘an important element of financial autonomy.’ [Commentary to Art. 29 of the draft ESCB Statute of 27 November 1990.] Apparently, they considered it of utmost importance that the ECB would not depend on the political authorities for decisions relating to the ECB’s financial strength and solvency. The IGC though would embed this article in Art. 42 (complementary legislation), allowing the Council of Ministers to determine limits and conditions for such capital increases. [The Ecofin Council has decided that the ECB is allowed to increase its capital with another euro 5 billion without further conditions – mentioned under Art. 33-ESCB in cluster II, which also mentions other ways in which ECB losses can be covered.] (In fact, this is an aspect of external checks and balances.)

Table 10-2: Assigned capital key shares in the ECB of EU central banks [Rounded figures (ECB Annual Report 2001, p. 193)] ~ Click to enlarge

I.2 Relevant features of the Federal Reserve System
In the FRS there are no comparable, patrimonial decisions, because unlike the euro area NCBs the Federal Reserve Banks are not shareholders of the central institution. In fact, the Board of Governors only generates costs, which are defrayed by assessments levied on the FRBs, according to their shares in the system’s total capital stock. The member banks which hold their FRB’s capital stock [Each member bank has to subscribe six per cent of its paid-up capital stock and surplus (FRA(1988), Section 2.3)] receive an annual dividend of 6 per cent on the paid-in capital stock.[FRA (1988), Section 7.1] The surplus is used to increase the FRBs’ general reserves (at most equal to its capital stock), while the remainder is paid to the Treasury (so-called: ‘interest on Federal reserve notes’ plus, in some years, statutory transfers). The annual amount paid to the Treasury has been erratic in the thirties and forties, but since 1948 the amount has always been positive and generally increasing. [Board of Governors, Annual Report 2001, Statistical tables, table 6]

II.1 History: Delors Committee and Committee of Governors
The Delors Committee did not pay attention to special voting procedures for financial issues,as it focussed entirely on the voting on monetary policy issues. However, already the first versions of the draft Statute of the Committee of Governors (dating from June 1990) mentioned the possibility of weighted voting, namely for ‘to decisions concerning capital assets and profit’. At that stage they did not have a clear view of the financial provisions and financial structure of the system, but it was clear that national interests were at stake due to the distribution of NCB profits to their national Treasuries. According to the Committee of Governors weighted voting should be based on the key for capital shares. In these cases proxy voting was allowed for, because central banks should always be allowed to vote on decisions having direct financial implications.

The draft Statute of 24 July 1990 read:
“9.3 Weighted voting shall apply to decisions pursuant to Article …. When weighted voting applies, the Governors’ votes shall be based on the capital share of their respective national central bank. If a Governor is unable to be present, he may nominate an Alternate to cast his weighted vote. – draft 24 July 1990

At an early stage it was decided that the members of the Executive Board would not have a vote in the case of weighted voting, because weighted voting was reserved for financial decisions relating to capital assets and profit.

In July the financial provisions were discussed by the Alternates, of which Article 26 was devoted to voting on financial matters:
“Article 26 – Voting on financial matters
For the purpose of Articles 27 to 30 [capital, transfer of assets and liabilities to the Central Institution and allocation of income, losses and profits of the System], the votes in the Council shall be weighted according to the key attached to the Statute. A decision by qualified majority shall be deemed to be approved if it carries [..] votes on the total of [..].” – Alternates‘ chairman’s note 29 August 1990

The accompanying comments read as follows:
‘It is assumed that, after a period (length to be specified), the allocation of net profits of the System should be determined by the key attached to the Statute, which is also used for the provision of capital to the central institution and for the voting rights related to ‘patrimonial decisions’. What this key should be deserves extensive discussion in view of its important (financial) implications.’

At their meeting of 11 September 1990, the Governors confirmed that weighted voting should apply only to financial matters and that votes should be weighted according to the key attached to the Statute. In the draft version of 14 September, Article 9.3 and 25 (formerly Art. 26) read as follows:
“9.3 Weighted voting shall apply in accordance with the provisions of Article 25. If a Governor is unable to be present, he may nominate an Alternate to cast his weighted vote.”

“Article 25 – Voting on financial matters
25.1 For the purpose of Articles 26 to 29 {i.e. the other articles of the Chapter VI on Financial Provisions}, the votes in the Council shall be weighted according to the key attached to the Statute. A decision by qualified majority shall be deemed to be approved if it carries [..] votes
on the total of [..].
25.2 The key referred to in Article 25.1 may be modified in accordance with Article … of the Treaty, as amended by …..” – draft 14 September 1990

This developed further into the draft of 27 November 1990, which was transmitted to the IGC:
“10.3 Weighted voting shall apply in accordance with the provisions of Article 28. If a Governor is unable to be present, he may nominate an Alternate to cast his weighted vote.”
“28.1 For any decisions to be taken under Article 29 to 32, the votes in the Council shall be weighted according to the key attached to the Statute. A decision by a qualified majority shall be deemed to be approved if it carries [..] votes out of a total of [..].” – draft 27 November 1990

During the period until April 1991 the Committee of Governors continued its deliberations on some of the financial provisions (capital key, distribution of income). Article 28.1 was renumbered into 29a. In the draft version of 26 April 1991 (forwarded to the presidency of IGC) this article was combined with Article 10.3 which then read:
“10.3 For any decisions to be taken under Article 28, 29, 30, 32 and 33, the votes in the Council of the ECB shall be weighted according to the national central banks’ shares in the subscribed capital of the ECB. A decision by a qualified majority shall be approved if the votes cast in favour represent at least [..] % of the subscribed capital of the ECB. If a Governor is unable to be present, he may nominate an alternate to cast his weighted vote.” – draft 26 April 1991

The Commentary of the Committee of Governors which accompanied the draft read as follows:
‘Weighted voting would apply to all decisions of a patrimonial nature which justify the derogation from the principle of “one person, one vote”. The Executive Board members in the Council of the ECB will have no weighted votes and will therefore not take part in decisions made under Articles 28, 29, 30, 32 and 33.
In order to ensure an equitable system of balanced rights and obligations, the key for weighting votes will be the same as that for the subscription by national central banks to the capital of the ECB (Article 28) and of profits and losses of the ECB (Article 33), as well as the transfer of foreign reserve assets to the ECB (Article 30). In the case of weighted voting a Governor, who is unable to be present, may nominate an alternate to cast the vote.’

We conclude that the principle of weighted voting for patrimonial decisions was not contested. The difficulties that arose had nothing to do with the relations between the Executive Board (zero-weighted) and the governors, but with the relations among the NCBs, and then especially on the precise formula for the capital key.

II.3 History: IGC
The draft Treaty texts of the Commission and of France did not specify the voting arrangements of the ECB. Details were left to the Statute, the draft of which would bediscussed during several meetings of the deputies IGC.
In the Luxembourg non-paper dated 6 June 1991, which summarized the findings of the first half year of the IGC, the changes in the draft Statute provided by the Committee of Governors generally were limited. As regards Art. 10.3 the issue of the ‘qualified majority’, which had deliberately been left open by the governors, had been specified as 70% of the subscribed capital of the ECB, though the number was still between square brackets. In the second half of
the IGC, the ESCB Statute was discussed mostly by the EMU Working Group, and not so much by the deputies or Ministers. In the Working Group the delegates of two countries (UK and Greece) had shown a strong preference for a qualified majority of two-thirds instead of 70 percent. They apparently feared that a higher threshold might risk handing to the German central bank de facto the right to veto qualified majority decisions, as their capital share could be close to 30%. The Dutch presidency adopted this in her consolidated text of 28 October, [UEM/90/91, dated 28 October 1991] initially using square brackets around [two-thirds].
During the meeting of the EMU Working Group on 27 November 1991 the delegates from small countries pointed to the fact that the central banks of the three or four largest countries would probably always represent more than two-thirds of the capital and proposed to combine the voting threshold with a critical mass of at least 7 central banks, in order to prevent strategic alliances. While this request was supported by the smaller countries, Germany and France favoured the original text. This issue was solved during the final ministerial IGC meeting of 30 November to 3 December 1991, at which it was agreed that a qualified majority in weighted voting should ‘represent at least two-thirds of the subscribed capital of the ECB and represent at least half of the shareholders.’ [Summary note of 6 December 1991 by the Secretariat of the Committee of Governors on the final meetings of the IGC held in Scheveningen and Brussels on 30 November to 3 December 1991, p.7.]

The chapter with Transitional Provisions in the ESCB Statute [UEM/91/91] would contain an article introducing the possibility to smooth possible abrupt changes in income allocation following the implementation of the Article 32 on the (re)allocation of monetary income. [Article 45, later Article 51:“45.1 If, following the entry into Stage Three, the Council of the ECB, acting by qualified majority, decides that the application of Article 32 results in significant changes in NCBs’ relative income positions, the amount of income to be allocated pursuant to Article 32 shall be reduced by a uniform percentage which shall not exceed [60] [30]% in the first financial year after the entry into Stage Three of EMU and which shall decrease by at least [12] [6] percentage points in each subsequent financial year.” – Governors’ draft 29 October 1991 – Apparently it was considered desirable to put a heavy lock on this ‘financial’ door. The Commentary states that the ECB Council’s room for manoeuvre would be limited in three respects. First, activation of Article 51 would be conditioned on the ECB Council’s perception of significant effects on the relative income positions. Second, upper limits ‘would ensure that only part of the monetary income would be exempted from the allocation scheme.’ Third, the derogation would be temporary (‘limited to a period of five years after the entry into Stage Three.’) These five years would later be interpreted as five years as of the introduction of the euro, because that was the earliest moment of an income shock due to the allocation of monetary income (the seigniorage generated by national currency banknotes had been excluded from the definition of monetary income, as these national banknotes were legal tender only in their]

During the legal nettoyage the phrase ‘acting by a qualified majority’ was deleted from this article after the UK delegation had suggested that ‘Article 10.3 provides this procedural rule’. We have seen that this is not the right reading of Art. 10.3, which also allows for weighted voting by simple majority.

 

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