EURO ZONE EASTERN ENLARGEMENT AND ECB’S VOTING MECHANISM REFORM

The present paper analyses the issue of the voting mechanism reform within the ECB, as a consequence of the Eastern enlargement of the EU. Now it is known that beginning with the 1st January 2007 the euro zone will “go east ” as Slovenia will be the first Eastern country the will join EMU’s 3rd stage. The eastern enlargement raises more complex challenges for the ECB because of three main aspects: 1. the new member states have to “catch up ” and this is very important when setting the interest rate, 2. the new member state’s economic weight is very small comparative with their prospected position in the Governing Council, and 3. in the absence of the reform the ECB’s Governing Council would become the body evincing the highest number of voters, as compared with other decision-making structures of other central banks, such as the FED, being very difficult for such a body to take monetary policy decisions. Based on those challenges, the ECB will implement a new voting mechanism. Even so, this will not solve the problem of having large economies with weak representation, and small economies that have strong representation in the Governing Council. 1. The Eastern enlargement and the real convergence: why does it matter for ECB and its voting mechanism? Real convergence means the reduction or even elimination of per capita GDP gap between the EU 15 and new member states or acceding countries. This challenge of real convergence needs economic growth for SEE countries greater than EU’s, which implies the convergence of prices and wages. Eastern countries have a weak performance concerning per capita GDP. Should real convergence be reached within the EMU, it is to be expected that poorer countries should have growth rates that are superior to the overall euro zone, until the levels of prices and productivity no longer substantially differ. This process will go on due to competitive markets, until the GDP per capita is the same all throughout the euro zone. Before 1999, there used to be a trend stating that an enlarged monetary unio