ECB Insight: Council Members With Right to Vote in December Relatively Dovish, But May Not Matter

15 September, 2021

By David Barwick – FRANKFURT (Econostream) – With European Central Bank President Christine Lagarde having made clear last Thursday that the Governing Council would defer major decisions until December, the question of which members are formally entitled to vote at that meeting may be of particular interest.

A quick glance at the ECB’s rotation system of voting rights shows that the December meeting will be relatively dovish in terms of who will have a vote then. Those not able to vote on this occasion include Dutch National Bank Governor Klaas Knot, Eesti Pank Governor Madis Müller, National Bank of Belgium Governor Pierre Wunsch and Central Bank of Ireland Governor Gabriel Makhlouf.

Knot’s non-voting status in particular deprives the hawkish bloc of one of its most stalwart members. Müller, though not as hawkish as Knot, is still squarely in the hawks’ camp. And Wunsch, for now still classified by Econostream as marginally dovish, has lately tended to open scepticism about ECB policies.

That leaves Makhlouf, whom we consider moderately dovish.

The cursory impression that the non-voting status of these four Council members could set the stage for a particularly dovish December meeting is readily supported by a somewhat more rigorous approach.

For internal purposes, Econostream ranks each Governing Council member on a numerical scale with arbitrarily chosen limits of -2 (the dovish extreme) and +2 (the hawkish end). Based on current rankings, the average of the entire Council is at -0.25, reflecting the dovish tilt of the body.

Of course, owing to the rotation system, only a 21-member subset of the entire Council has the right to vote at a given meeting on monetary policy decisions, meaning that the relevant average hawkishness/dovishness varies around -0.25 depending on who is excluded, with a more negative number implying a higher degree of dovishness.

Using this approach, in the case of December, the average hawkishness/dovishness of those Council members with voting rights is -0.38.

This is significantly more dovish than normal. By comparison, the corresponding number at last week's meeting was -0.21, and on October 28 it will be -0.20. At the January 20 meeting, six weeks after major decisions will presumably have been made, the average hawkishness/dovishness of Council members entitled to vote will be -0.31.

It is thus fair to say that December stands out by virtue of the relatively high average dovishness of voting Governing Council members.

Indeed, there is reason to think that this understates the case, and that reason is Wunsch. Along with Bundesbank President Jens Weidmann, the Belgian governor was the only one to object to the new forward guidance decided at the July meeting.

Econostream last revised Wunsch’ ranking at the end of April, when we ‘upgraded’ him from -0.5 to -0.25. Although we presently consider him a candidate for another revision in the direction of more hawkishness, we prefer to see sustained patterns that corroborate changes before we make them.

That means that when the thinking of Governing Council members like Wunsch shifts with evolving circumstances, as is perfectly normal, our ranking can lag a bit. So if Wunsch is more hawkishly inclined than we currently classify him, then his non-voting status in December would imply a yet more pronounced average dovishness of voting members.

All that said, we are reluctant for at least two reasons to assert that any of this will influence the outcome of the December monetary policy meeting.

One reason is that while unable to vote, Governors Knot, Müller, Wunsch and Makhlouf can all participate in the Council’s deliberations and express their point of view.

The more important reason however is that there will probably not even be a vote anyway. As one person who is present at these occasions told Econostream, ‘You don’t need to vote because the decision is always based on so large a majority that you really don’t need to count. I think everybody understands that you cannot change anything [about monetary policy] with such a slight majority that the outcome could change due to the rotation.’

The decision in July, supported by 23 out of 25 Council members, was one case in point. Another, more relevant one was the outcome of last week’s meeting - ‘a unanimous decision, in all respects’, as ECB President Christine Lagarde characterised it.

As that meeting can be considered a key steppingstone to the December decision, it suggests somewhat limited potential, at least as of now, for the kind of massive dissent that would make a formal count of hands necessary.

That being the case, as important as December 16 will be, the particular constellation of voting members that day may have little bearing on the outcome. Indeed, unless new developments between now and then provide compelling arguments for ongoing monetary support, voting hawks’ relatively depleted ranks could be a complete non-issue.