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How voting rights rotate on the ECB Governing Council

How voting rights rotate on the ECB Governing Council

Lithuania’s accession to the euro area at the beginning of 2015 will cause the ECB Governing Council’s voting rights to rotate. The introduction of the euro in this Baltic nation will raise the number of national central bank (NCB) governors on the ECB Governing Council above the threshold of 18, thereby triggering a new voting system similar to that of the US Federal Reserve System (Fed).

To date, all members have had both a voice and a vote at ECB Governing Council meetings. This includes, at present, not only the six-person ECB Executive Board but also the 18 presidents or governors of the Eurosystem NCBs. They do not represent the interests of their country on the ECB Governing Council but are ex officio members in their capacity as independent experts  As new member states join the euro area, the ECB Governing Council also grows, which hampers efficient and timely decision-making.

Back in late 2002, the Governing Council therefore adjusted the voting modalities so that voting rights would be capped in future and rotate among the NCB governors on the Governing Council. This change was originally intended to take effect following the accession of the euro area’s 16th member. However, in 2008 the ECB Governing Council decided to make use of its power of discretion and to delay introduction of the rotation system until the number of NCB governors exceeds 18.

Monthly rotation of voting rights

Figure: Rotation principle on the ECB Governing Council
Rotation principle on the ECB Governing Council (given 19 to 21 member states)

Under the rotation principle, NCB governors will be allocated to different groups based on the size of their country’s economy and financial sector. As long as the euro area has between 19 and 21 member states, two groups will be formed. The first group will be composed of the five “largest” countries according to the above criteria. They will share a total of four voting rights on the Governing Council. The countries in this group are Germany, France, Italy, Spain and the Netherlands. Voting rights within this group will rotate monthly, which means that every month one of the presidents of the five largest countries’ central banks will not be eligible to vote.

Picture of a table with both groups of the rotation system and the frequency of voting rights
Table 1: Rotation system based on two groups (first stage)

Bundesbank President Jens Weidmann, as a Governing Council member, will have to forgo voting every five months. In 2015, following a decision by the ECB Governing Council, he will not have voting rights in May and October, and in 2016 he will have no vote in March and August.

However, each Governing Council member will always be allowed to attend meetings and participate in the discussions. Under the rotation system, this right is also accorded to those members without a current voting right on the Governing Council. They are thus still allowed to present their arguments – on interest rate decisions or non-standard measures, for instance – at every Governing Council meeting and thus to influence the decisions of the voting Governing Council members.

Eleven voting rights for group of smaller countrie 

The remaining central banks will share a total of eleven voting rights, which will likewise rotate monthly. Countries such as Latvia, Ireland or Portugal belong to this group, Lithuania will also be assigned to this group upon accession. Under the Governing Council decision, the governors of the central banks of Estonia, Ireland and Greece will be the first to forgo voting once the rotation procedure is launched in January 2015.

The six members of the Executive Board will retain a permanent voting right. The number of voting rights on the ECB Governing Council will thus be reduced to 21. ECB Governing Council decisions affecting capital and reserve assets or profit distribution will be taken by a weighted vote according to each NCB’s capital share in the European Central Bank.

Given 22 or more member states, three groups

Figure: Rotation principle on the ECB Governing Council
Rotation principle on the ECB Governing Council (given 22 or more member states)

Once the number of euro-area member states exceeds 21, three groups will be formed. As before, the first group composed of the five largest countries will share four voting rights, while the second group of medium-sized countries will receive eight voting rights. The governors of the third group, comprising the smallest countries, will share three voting rights. Compared to the current situation, further expansion of the monetary union will reduce the relative voting weight on the ECB Governing Council of, most notably, the small countries.

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