Sebastian Mallaby has a piece in today’s Financial Times arguing that the European Central Bank’s voting system (in which the Germans are heavily outnumbered, despite their economic clout) is a bad deal for Germany. He goes on to argue:
At the start of the 1990s, Germany agreed to the ECB’s governance structure because its postwar leaders were reluctant to press their national interest and because they wanted European acquiescence in German unification. Today, Germany is more assertive and unification is history. It is naive to expect Germans to tolerate governance arrangements that combine high potential taxation without commensurate representation.
This history is plausible, and indeed widely believed to be true, but new research shows that it is historically incorrect. The actual story of how these voting arrangements came into being is told in Harold James’ new book on the history of European Economic and Monetary Union (it’s very good: my review will be coming out in the Nation a couple of weeks from now). James’ work in the archives reveals that the arrangement came into being for a rather different set of reasons. Proposals for this kind of voting system were floated in private meetings of the Delors Committee (which was investigating the possibility of economic and monetary union) in 1988, before the fall of the Berlin Wall (let alone international bargaining over German unification). The source of this proposal? The then-head of Germany’s Bundesbank, Karl-Otto Pöhl. When outlining early ideas for a ‘European Central Bank Council,’ Pöhl drew:
in particular … [on] the experience of the Bundesbank Council, with representation of the German regional central banks (Landeszentralbanken) but no attempt to have weighted voting (in relation to population or economic size), that provided the strongest basis for arguing against a more political version of a European Central Bank (244)
This paved the way for an agreement in 1990 on non-weighted voting among the committee of central bank governors, who were proposing the broad principles on which a European Central Bank would work.
In July, the CoG agreed on the “one man one vote” principle for the ECB Executive Board, which in the case of a conflict would apparently mean that the effective power of the Bundesbank would be greatly reduced. There would be no rotation of voting equivalent to the arrangement that prevails in the Open Market Committee of the Federal Reserve banks, whereby only the New York bank …. has a permanent vote. The central bankers thus rejected the original plan of the EC Commission, which would have made the system much more political. The shift later attracted a great deal of criticism in Germany, which looked to be the loser if the institution was viewed in terms of a balance of power, with influence shifting to the numerous softer-currency and southern countries. But in fact the decision reflected the experience of successful consensus forming in the CoG and indicated the extent to which the Bundesbank was now prepared to trust the stability-oriented monetary philosophies now emerging in other central banks. The exercise of consensus formation in practice, as events later materialized, combined with the avoidance of the formal votes that characterized the Federal Reserve’s Open Market Committee, generally gave German interests a greater rather than a lesser voice in the ECB Council. (284-285)
In short, the decision had nothing to do with tradeoffs surrounding German unification, and instead was a consequence of the Bundesbank’s comfort with its own domestic arrangements and its perception that other central banks shared its basic precepts, so that brute voting strength was likely to be less valuable than more subtle forms of suasion and consensus shaping. Of course, as Mallaby argues, the Bundesbank finds itself in a quite different strategic situation now than it did then, and likely bitterly regrets its earlier decision. More broadly, this story of institution building is an interesting one for international relations scholarship. Typically, IR scholars have tried to explain voting patterns in international organization using versions of Mallaby’s logic, and arguing that states will try to push for voting schemes that favor their interests in hard-elbowed one-shot bargaining situations. This instance of institutional design, however, plausibly fits better with constructivist arguments, which emphasize the ability to persuade, to tacitly shape consensus etc, as a ‘face’ of power that cannot be neglected.