On last night’s Prime Time report on quangos and inefficiencies in the public sector, reporter Donagh Diamond said:
The introduction of the euro abolished a major function of our central bank, the devising of monetary policy. So we wondered where all the staff went. Remarkably, the CB tells us that on the creation of the euro “The functions of the CB remained largely the same” clearly indicating that no staff went anywhere.
As a former employee of the Central Bank, I have regularly had this point put to me over the past number of years—“What does the Central Bank do now?” But this question, and Donagh Diamond’s comments, are based on a highly flawed understanding of how the ECB’s monetary policy operates.
Monetary policy in the Euro Area is set by the Governing Council of the ECB, which has six members from the ECB Executive Board and sixteen Governors of the participating central banks. The introduction of the euro did not “abolish” the central bank’s role in devising monetary policy. Instead, it meant that the bank was involved in devising this policy in conjunction with the other members.
Without doubt, some who have read this will say “But sure nobody at the ECB would listen to Ireland.” This misunderstands how the Eurosystem operates. A very large amount of the work is decentralised to participating central banks. For example, the Irish Central Bank does all the work on forecasting and collection of statistics that it always did.
However, the individual central banks also now have to do more work on monitoring Euro-area developments because the rules of the Eurosystem state that the Governor’s vote on monetary policy must reflect Euro-area developments rather than just conditions in their home country.
Beyond the misrepresentation of the work of the Irish central bank, I think these kinds of comment illustrate a general confusion among journalists and the public about what exactly the ECB is and what it does. I would recommend that they could do a better job of explaining themselves to the wider European public.