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Gold/Mining/Energy : Euro Impact on Gold, USD ... -- Ignore unavailable to you. Want to Upgrade?

To: banco$ who wrote (85)	11/30/1998 6:27:00 PM
From: banco$	Respond to of 289

INTERVIEW--Ex-Fed Blinder sees dicey ECB consensus By Isabelle Clary NEW YORK, Nov 30 (Reuters) - The President of the European Central Bank (ECB) may have more difficulty building a consensus on monetary policy than the Federal Reserve Chairman does due to different voting structures in the two federal systems, former Fed Vice Chairman Alan Blinder said. ''Perhaps the key to unanswered questions on how the ECB will make monetary policy is to what extent the 11 central banks governors will take a European perspective versus a national perspective,'' Blinder told Reuters. ESCB VOTING AND POLITICAL CONSIDERATIONS ''It should not matter very much that there are 11 nationally-appointed representatives and six Europe-appointed representatives if they take a European perspective,'' added Blinder, now a professor of economics at Princeton University. ''But if their perspective is more national, then the composition will matter greatly.''. The structure of the European System of Central Banks (ESCB) is similar to the Fed System -- up to a point. The Fed System includes a seven-governor board and 12 district banks, each headed by a president. The ESCB includes the ECB and its six-member Executive Council and the 11 Euroland national central banks led by their governors. But unlike at the Federal Open Market Committee (FOMC) where only five of the 12 Fed bank presidents vote at meetings, all 11 euro-zone central bank governors vote at all times. As a result, national central bank governors always outnumber Executive Board members -- unlike voting Fed presidents who are always outnumbered by Fed governors at the FOMC. Critics have questioned whether this will influence monetary policy, mainly since national central bank governors are political appointees. ''The ECB is starting within one month and nobody knows the answer to that question. This (ESCB voting structure) may or may not prove to be important,'' said Blinder, who also heads the international research think-tank, The G7 Group. ''The ECB will need a European-wide perspective. It's going to be very difficult for the ECB if all the countries take a country-specific perspective,'' added Blinder, who expected continued supported for the euro ''because the 11 countries have sacrificed quite a lot to get in.'' CONSENSUS BUILDING OVER TIME But Blinder also pointed out that the current situation at the Fed, with a powerful chairman who can sway others toward a consensus, did not exist right from the start of the Fed System in 1913. ''Years from now, the ECB may evolve toward the same sort of (policy) consensus as at the Fed, where the chairman tells the Committee what the consensus is,'' Blinder said. ''But there is certainly no reason to think it will happen at the ECB on Day One because it certainly did not happen on Day One at the Fed.'' The former Fed vice chairman said the main difference between the two federal systems is that the Fed chairman is ''extremely powerful'' while it is unlikely ECB President Wim Duisenberg would command as much influence right away. "It's a question of not having the tradition yet," Blinder added. GROWTH, LIKELY A KEY CONCERN FOR THE ECB Although the ECB has a single anti-inflation mandate, Blinder was confident it would take growth into consideration. ''The ECB will be patterned after the Bundesbank and the Bundesbank does pay attention to the state of the business cycle in Germany. I expect the ECB to pay attention to the state of the business cycle in Europe,'' predicted Blinder, who cautioned against viewing the Bundesbank's steady monetary policy today as a harbinger of the ECB's future stance. ''European monetary policy currently is subject to the limitations tied to the stability pact,'' he noted. Before launching the euro in January 1999, the 11 European nations in the monetary union must align their respective short-term interest rates, seen converging toward the Bundesbank's 3.3-percent repurchase agreement rate. With interest rates in several union members still above that convergence level, the Bundesbank had to keep German policy steady despite the global financial turmoil that led the Fed to ease credit three times since late September. As for the role of the euro as a reserve currency, Blinder said ''that is greatly overblown on the short run ... The dollar may lose some of its market share to the euro, but that's not a major problem for the United States. It frankly matters very little to the U.S. dollar.''