/www.bloomberg.com/ By Rainer Buergin, Christian Baumgaertel and Andreas Scholz
Frankfurt, Dec. 6 (Bloomberg) -- European Central Bank policy will in the future be dominated by the largest nations among those sharing the euro, according to a proposal by the bank aimed at streamlining the way it sets interest rates.
Germany, France, Italy and Spain, which account for 80 percent of the region's economy, will vote on rates more often than smaller countries when the European Union expands to include eastern European nations, ECB council member Ernst Welteke said. The U.K. would join these four should Britain adopt the euro.
``These countries will have a voting right in 80 percent of cases,'' Welteke, also president of Germany's central bank, said in an interview. ``That's a compromise, which we had to find.''
The ECB, which says it reaches decisions by consensus among its 18 rate setters, has been criticized by politicians including German Chancellor Gerhard Schroeder and companies such as Siemens AG for not cutting rates fast enough as the $7 trillion economy grows at the slowest pace in nine years. The ECB plan resembles the way the price of money is set at the U.S. Federal Reserve.
The U.K., Sweden, Denmark and as many as a dozen other countries may swap their national currencies for the euro in coming years. That would lead to 33 people discussing rates.
``As long as they strive for consensus, a larger and more diverse group of countries could slow the decision-making process,'' said Holger Schmieding, an economist at Bank of America Corp. in London and author of a 1993 book on European economic integration.
Following the Fed
The ECB cut its benchmark rate by half a percentage point yesterday to 2.75 percent, the lowest in three years. It was the first cut since November 2001. The move followed last month's reduction by the Fed, which trimmed its key rate to a 41-year low of 1.25 percent.
``The ECB could have cut rates a bit earlier -- it is sometimes a bit timid,'' said former Bundesbank President Karl Otto Poehl in an interview. ``The problem is the one-size-fits-all.''
The ECB's proposal, which must be approved by the EU's 15 member states, brings the four-year-old Frankfurt-based central bank more into line with the way the Fed sets monetary policy.
The Fed's policy-setting Open Market Committee is composed of all seven members of the central bank's Board of Governors and the presidents of the 12 regional Fed banks. Of those 19 people, 12 vote at any one time.
Governors all vote, and so does the president of the New York Fed Bank, which conducts central bank interest-rate policy through its open market desk by selling and purchasing government securities.
The other 11 bank presidents vote on an annual rotation, sharing four votes among them. Fed Chairman Alan Greenspan has emphasized consensus in policy decisions, and while formal votes are taken at each meeting, dissent has been rare.
`Unrepresentative'
Ten countries are seeking to join the European Union in 2004 -- Poland, the Czech Republic, Hungary, Estonia, Latvia, Malta, Lithuania, the Slovak Republic, Cyprus and Slovenia.
Romania and Bulgaria are planning to join later in the decade. Turkey hasn't begun membership talks yet.
Germany, France, Italy, Spain and the U.K. will have four votes at all times in the expanded council. Eleven votes will be shared by two groups totaling as much as 22 countries, Welteke said. The six members of the ECB's executive board, including the president, vice president and chief economist, will always vote.
Should the ECB keep to one vote per person, ``you would run the chance that decisions could be taken by a number of governing- council members that would be, may I call it, unrepresentative for the euro area as a whole -- if you measure it by GDP or by population or however,'' ECB President Wim Duisenberg said at a press conference after the rate reduction.
``That was the most complex and difficult problem to solve, but we have solved it,'' he said, outlining the changes.