The European Central Bank (ECB) has kept its interest rates steady despite the fact that economic growth in the eurozone is still very weak. What is the reason for this policy? Simply, the fact that the three largest countries (Germany, France and Italy), all of which favor a rate cut, are in a minority among the ECB Governing Council and that smaller countries that face inflationary pressures are in the majority. This interesting and novel answer is provided by the Euro Area Monthly, an English-language publication by National Bank of Greece’s Strategic Planning and Research Department. Of course, this is purely a hypothetical scenario, since the result of ECB Council votes is never announced in detail (that is, who voted for and who against a specific proposal). The Governing Council is composed of the six members of the Executive Council plus the 12 heads of the central banks of eurozone member states. France, Germany and Italy have a total of six votes in the Council. All votes are equal, and not weighted, which means that the Bundesbank governor and his Luxembourg colleague, for example, have a vote with an equal weight. But all 18 members of the Governing Council are supposed to vote not according to national interest but according to the interest of the eurozone as a whole. That is why we have called National Bank’s analysis «novel.» The hypothetical model adopted by National Bank estimates the rate that would result if all Governing Council members took into account the common good when voting. It finds that this was what happened during the period from 2001 to 2003. «Since the beginning of 2004, however, the weakening of the euro has led to increased inflationary pressures in the periphery countries and, thus, may have induced upward ‘vote bias’ in the ECB’s target interest rate.» This target rate has remained at 2 percent, even though the macroeconomic conditions prevailing in the eurozone would call for a rate of 1.5 percent. Over the last quarter, the deviation of inflation growth rates among eurozone member states has increased because of the euro’s weakness. Smaller countries are more open to trade with non-EU members, hence the higher inflation. What will finally happen to the ECB’s main rate? National’s forecast is for the bank to lower the rate by 0.25 percent, to 1.75 percent, but that this will happen after inflation pressures in countries on the periphery subside after three to four months.