The recent co-ordinated interest rate cut by 11 central banks was hailed as a courageous start for economic and monetary union. However, what did it say about monetary policy in the euro-zone and about the transparency of that policy under the new regime?

The rate cut had no obvious justification in terms of the European Central Bank's (ECB) chosen monetary policy strategy, which consists of a monetary reference and a broad set of economic data and forecasts.

Mr Wim Duisenberg, president of the ECB, and other central bankers explained the cut on grounds of a rapid decline in business and consumer confidence in the euro-zone countries. Most commentators welcomed the rate cut for the same reason.

No central banker, however, even attempted to defend the move as a core pillar on which the bank would base its decisions to cut or raise interest rates.

The available data, however, suggest that M3 in the euro-zone has been growing in a relatively stable corridor of between 3 and 5 per cent annually, offering no obvious rationale for a cut in rates.

The second pillar in the ECB's announced policy offered no explanation for the cuts either. The ECB has defined price stability as an increase in the harmonised index of consumer prices of between 0 and 2 per cent. That index stood at 1 per cent in October, and is forecast to remain stable within the range.

It is extremely unlikely that the harmonised index will turn negative because of price and wage rigidities in the continental European economies. Nor does the ECB expect a rapid decline in economic growth next year.

Mr Adam Posen, economist at the Institute for International Economics, warned the ECB in a recent article against the adoption of a "monetary masquerade" - under which the central banks of the eurozone officially announce a money supply target only to ignore it at the first convenient turn. This is what appears to have happened last week.

Last week's rate cut suggests that the ECB will pursue a relatively discretionary monetary strategy. There is probably no alternative to this in the short run, given the unknowns associated with the transition to the single currency. Yet, the ECB pretends to be a rule-based central bank.

The gulf between the ECB's announced strategy and its policy may be one of the reasons why Mr Duisenberg and his colleagues remain opposed to the publication of minutes. If the public knew how and why decisions are taken, it might be more difficult to keep up the masquerade.