August 23, 2012
The future of the euro and maybe of the European Union itself will turn in the next few weeks on a disagreement between Mario Draghi, president of the European Central Bank, and Jens Weidmann, head of the Bundesbank. Draghi wants the ECB to do “whatever it takes” to preserve the single currency. Weidmann doesn’t.
A question arises: How did the Bundesbank, representing just one nation among the 17 members of the euro area, ever acquire the veto over ECB policy it is apparently allowed to wield?
There are two main answers. First, when the Bundesbank ruled the roost as Germany’s central bank, its reputation was peerless. In some ways the ECB was modeled on it, and the habit of deference persists. But while the Bundesbank still calls itself a central bank, its role now is to serve as a regional office of the ECB.
Second, Germany is the biggest economy in the euro area. But so what? Votes on the ECB’s governing council are distributed not by shares of euro-area gross domestic product or ECB capital. The ECB was purposely designed so that every country in the system sends a member to the council; each of those members has one vote.
Germany doesn’t actually have a veto; it just talks as though it does, and the rest of the council usually goes along. Don’t be fooled; Germany understands the limit of its power. Some of its politicians have started complaining about it, saying it’s wrong that Malta has as much voting power as Germany and the rules should be changed. They are worried that Germany’s minority view on the council might soon be voted down.