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How should large and small countries be represented in a currency union?

  • Helge Berger

    ()

  • Till Mueller

The likely extension of the euro area has triggered a debate on the organization of the ECB, in particular on the apparent mismatch between relative economic size and voting rights in the Council. We present a simple model of optimal representation in a federal central bank addressing this question. Optimal voting weights reflect two opposing forces: the wish to insulate common monetary policy from changing preferences at the national level, and the attempt to avoid an overly active or passive reaction to idiosyncratic national economic shocks. A perfect match between economic size and voting rights is rarely optimal, and neither is the “one country, one vote principle”. Empirically, there are indications that the pattern of over- and under-representation of member countries in the ECB Council might be extreme by the standards of the US Fed and German Bundesbank and not always optimal.

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File URL: http://hdl.handle.net/10.1007/s11127-007-9173-x
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Article provided by Springer in its journal Public Choice.

Volume (Year): 132 (2007)
Issue (Month): 3 (September)
Pages: 471-484

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Handle: RePEc:kap:pubcho:v:132:y:2007:i:3:p:471-484
DOI: 10.1007/s11127-007-9173-x
Contact details of provider: Web page: http://www.springer.com

Order Information: Web: http://www.springer.com/economics/public+finance/journal/11127/PS2

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