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Article Abstract:
This paper analyses the link between the forthcoming EU enlargement and selected aspects of EU institutional reforms, namely decision-making rules in the European Central Bank and the status of the Eurogroup. It states that some earlier arguments calling for urgent ECB reform are based on unrealistic assumptions. It concludes that the reform recently adopted by the EU Council as well as the present system, while not free from shortcomings, could provide a workable environment for monetary policy in an enlarged EMU. Additionally, the paper claims that designing efficient institutional solutions for the European Council is also important from the perspective of the new member states, as it might impact their chances for early adoption of the common currency.
The paper argues that EMU enlargement would not necessarily undermine the effectiveness of the current rules. The reform proposed by the ECB itself, currently at the stage of ratification by member states, also provides a reasonable framework for monetary policy making in the larger monetary union. Its major drawbacks are rooted in the sphere of intra-EU politics, rather than in economic effectiveness. The design of the current ECB architecture was influenced by the experience of the functioning of the Bundesbank. Since the UK stayed outside the euro-zone, there was much less impact from the practice of direct inflation targeting frameworks steered by a small monetary policy council consisting of monetary policy experts. Such policy culture influences arguably have a strong impact on institutional design. Consequently, one should not expect a major revolution in the decision-making rules of the ECB in the near future.
The prospects of EMU enlargement clearly have some impact on the discussion of the future of the Eurogroup and ECOFIN, and on economic policy co-ordination at the level of the euro-zone and of the EU as a whole. However, these discussions are largely driven by other considerations and the positions of major actors are determined by their specific experience and goals. From the perspective of accession countries, assuming they are willing and able to quickly adopt the euro, the risk is that the functioning of ECOFIN becomes inefficient and the Eurogroup emerges as a way to overcome this problem. In such a scenario, there might be opposition from incumbents to let new members into EMU, as this could undermine the efficiency of the functioning of the Eurogroup and thus the monetary union as a whole. Designing efficient institutional solutions for economic policies in the enlarged EU is thus in the best interest of all EU members, though this task is much complicated by the sheer size of the union and diverging views on the optimal balance of checks and powers between actors involved.
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