ZEW Survey: Financial Experts Complain about ECB's Lack of Transparency

Dissatisfaction prevails among many players on the capital market due to the lack of transparency in ECB decision-making. For the first time, this dissatisfaction was captured empirically by a survey conveyed by the Centre for European Economic Research (ZEW) in Mannheim. The survey polled 330 financial market experts from banks, insurances and companies based in Germany. When asked about the transparency in ECB decision-making regarding monetary policy, 53.3 per cent of financial experts held that the ECB Governing Council does not yet provide a sufficient level of transparency in this regard. By contrast, 46.7 per cent deem the decision-making process to be sufficiently predictable.

The interviewees were further asked to assess three proposals for the optimisation of transparency that are currently discussed. As is generally known, the core of the problem lies in the tense relationship between the monetary growth and the inflation outlook. Whereas the monetary growth can be easily ascertained and compared to the reference value, ECB predictions for the inflation rate yet remain opaque. Duisenberg and his colleagues indeed give an outline of the financial outlooks within the framework of press conferences and monthly reports; however, they invariably refuse to cut down this multi-layered information to one single number. Against this backdrop, the first and least far-reaching proposal for optimising the previous proceedings is to offer more detailed explanations on the inflation outlook, e.g. in terms of a publication series, which are modelled on inflation reports published by the respective central banks of England, Sweden and New Zealand. Secondly, requests for a publication of a quantitatively precise inflation outlook by the ECB were voiced, which supporters believe will provide a greater verifiability of monetary policy decisions. A third option of reform is to publish the minutes of the ECB Governing Council meetings in a similar way the Bank of England does.

The survey produced a clear-cut ranking of these three options. 54.8 per cent of the interviewees favour the proposal for the ECB to improve their transparency by offering more detailed explanations on the inflation outlook. 43.7 per cent endorse a quantitatively precise inflation forecast. The proposal to publish the minutes of the ECB Governing Council meetings lags well behind with 33.1 per cent.

For the ECB Governing Council, the outcome of the survey is ambivalent. The bad news is that despite all its efforts, dissatisfaction over the lack of transparency persists among the players on the capital market. The good news is that the majority of actors on the financial market not necessarily demand profound changes. By means of a more thorough communication of the inflation outlook, wider-reaching measures such as the publication of a precise inflation forecast or the minutes of the ECB Governing Council meetings could be avoided.

Contact

Dr. Friedrich Heinemann, Phone: +49(0)621/1235-149, E-mail: heinemann@zew.de