FRANKFURT -- Tensions are growing at the
European Central Bank
, slowing down preparations for the official start Jan. 1 of
European Monetary Union
. Apparently, some of the 11 EMU nations are placing more emphasis on national considerations than on pan-European teamwork.
The difficulties at the ECB come at exactly the wrong time. Global financial problems have started to place pressure on the stronger European economies, and European leaders are looking to the ECB to provide the kind of leadership that one would expect from the
. Instead, decisions on monetary strategy are being delayed, and despite insistence that all is running smoothly, insiders say that even simple decisions are becoming bogged down by sharp political struggles. Most telling, on Friday, Bundesbank chief Hans Tietmeyer lashed out at certain European central banks about to join the ECB, saying that they were moving too slowly to bring their rate structures in line with the anticipated ECB rate.
According to those familiar with the situation, the Sept. 11 ECB Governing Council meeting didn't go well. Frequent bickering slowed progress on the development of a unified monetary strategy. After that meeting, ECB President Wim Duisenberg -- looking drained at a packed press conference -- emphasized several times that the ECB must speak with one voice.
"Duisenberg thought everyone on the council would leave their nationalities outside the door and become Europeans," said one person familiar with the meetings, speaking on condition of anonymity. "But he was wrong. It is a real mess. I think we have had two very tough sessions."
One camp -- along with the ECB itself -- contends that the recent tensions represent no more than growing pains for a new and powerful institution. Manfred J. Koerber, director of external relations for the ECB, told
that recent delays in reaching consensus on certain issues stems primarily from an overburdened schedule. Critics say they would generally agree with that sentiment, but with the global economies struggling, the whiff of discord is worrying to investors already fretting about the impact of a weakened White House on the global financial situation.
Two of the biggest tensions appear to be rate convergence and monetary targeting strategy. All EMU nations Jan 1. must live with a one-size-fits-all rate, but thus far high-rate nations have not made decisive cuts to prepare for convergence. The Bundesbank's 3.3% repo rate is Euroland's benchmark, while rates in Spain, Ireland, Italy and Portugal range from 4.25% to more than 6.0%.
As for monetary strategy, the Bundesbank strongly wants money-supply targeting, while others want inflation targeting or a combination of the two.
The ECB's Koerber argued that there's no tension on short-term rates, since the ECB won't set such rates until January 1999.
But those familiar with the recent meetings of the ECB said Bundesbank officials at the Sept. 11 meeting spoke in strong, heated terms that the high-interest EMU nations needed to start immediately cutting rates to the core Euroland level. Tietmeyer, the Buba chief, underscored that view Friday, with a strongly worded speech aimed at getting the higher-rate nations in line earlier rather than later. Right now those countries are hesitant to move, fearing that inflation will become a problem.
And Tietmeyer in his speech appeared to confirm that EMU would start at a rate no higher than 3.3%: "Convergence in the lower level of the interest-rate gap is certainly from today's perspective more likely than at the current average level."
But apparently political and national tensions at the ECB are not confined to the big issues of rate and monetary targeting but extend to smaller operational issues, such as FX and money-market operations. "There are a lot of decisions pending. The ECB has to be operating Jan. 1. But it appears that each detail of operation has political strings attached and that things are just not progressing smoothly."
A trader in Frankfurt who has heard rumors of ECB tension said many investors remained confident about the upcoming monetary integration. The tension, he said, is "really no surprise."
Other sources of tension include the heavy presence of economists and analysts from the U.K. Insiders say the number of U.K. experts is inordinate, given the fact that the U.K. opted out of the first round of monetary union. And the French, it seems, believe the Germans are overrepresented -- primarily at the expense of the French.
While European integration has progressed, old sovereign feuds have persisted, and it is likely that the same is occurring in the ECB Governing Council sessions. The Governing Council includes the six Frankfurt-based appointees of the Executive Board, including Dutchman Duisenberg and Vice President Christian Noyer, a Frenchman. The other executive members are a Finn, a Spaniard, an Italian and a German (Otmar Issing, a heavyweight central banker and former Bundesbank chief economist).
The other 11 Governing Council members are the respective central-bank heads of the 11 EMU nations. Those include the mighty -- Tietmeyer and France's Jean-Claude Trichet -- and the formidable -- Italian, Antonio Fazio. But don't forget, the Governing Council is a democracy, and even Duisenberg's vote counts no more than the vote of the central-bank chief of Portugal, whoever that is. (Just kidding. That would be the honorable Antonio Jose Fernandes de Sousa.)
Obviously, Duisenberg is carrying a heavy burden on his shoulders. It's likely that the burden will only grow heavier as the days move ahead.