Why not have all EU countries commit themselves to establishing independent bodies with the responsibility of enhancing transparency by conducting independent forecasts of the countries’ deficits and providing recommendations on a regular basis? They would have only an advisory role and their authority would stem from impartiality and expertise. The subject of their recommendations would be the overall fiscal stance - neither the specifics nor indeed the political orientation of fiscal policy. The Excessive Deficit Protocol (EDP) states that member states shall ensure that national procedures in the budgetary area enable them to meet their obligations. It would therefore be in the spirit of the EDP to have EU countries commit themselves to establishing these kinds of bodies. At the very least, these independent bodies would be able to make more reliable and unbiased forecasts as a basis for EU recommendations. Such an arrangement would avoid having unreliable deficit figures before elections, only to “discover” the real state of accounts after the vote - such as has been the case in Portugal, France, Germany, and most spectacularly in Greece recently. By having a similar role as the Congressional Budget Office in the US, the bodies would ensure a reliable and unbiased “reality check” in times of fiscal profligacy.
Experience has taught me that every decision-making body needs a sheltered area away from the public where things may be imperfectly stated and seemingly irrefutable truths may be called into question. If such a sheltered domain is abolished, this will, in my view, have a negative effect on negotiating practices and the quality of decisions. Optimisation of ex ante transparency is, by its very nature, more critical. A clear and open commitment to a monetary policy goal is of central importance. Thus the central bank must state explicitly what it means by price stability, and it must also communicate how it assesses the long-term development of the target figure. Both elements serve to enhance - or even facilitate - the predictability of its policy and to reduce uncertainties. Conversely, it must be accepted in monetary policy that the precise way to the goal is fraught with considerable uncertainties and that therefore too much ex ante transparency can easily become counterproductive. In the context of our concept this applies in particular to the interest rate path to be followed. If a target range for the money market rate is published at a particular point in time, this steering intention remains valid “for the time being”. It is quite understandable that market participants should wish to know more: how long the interest rate target is to remain valid, and what interest rate steps are likely to follow. What they would prefer above all else is information on the planned interest rate path for several quarters.