Democratize the European Central Bank
Central banks are very powerful institutions. They can create money in order to support the economy and can set policies independently from elected governments. Positive Money Europe wants to make sure that the European Central Bank’s extraordinary power is matched with an important degree of transparency and democratic control.
Central banks are the most powerful economic institutions that exist. For one, they aim to oversee the creation of money into the economy. Secondly, because they have been granted independence from political interference, which allows them to act decisively in full autonomy.
The European Central Bank is even more powerful than other central banks because it operates ‘above’ nation states in the Eurozone. The ECB’s statutes and independence are enshrined into international Treaties, which are difficult to amend.
The financial crisis in Europe resulted in an increase of influence of the ECB into the decision making structures of the EU. This increase in power was largely because the Eurozone structure was unprepared for dealing with a crisis, and the ECB is the institution which has the best ability to take fast action – it can create a potentially unlimited amount of money with a few keystrokes.
While the ability of the ECB to act fast was generally helpful in addressing the crisis, the ECB’s independence was perceived as a barrier for monetary policy acting to support Eurozone economies effectively. In addition, the ECB’s involvement in the Troika resulted in situations where decisions from unelected officials at the ECB made the daily lives of millions of citizens harder, and sometimes even helped to determine the fate of national governments. For example, the ECB sent secret letters to head of states in Greece and Italy, which ultimately resulted in the fallout of those governments. Similarly, the ECB effectively forced Ireland’s government to bailout the banking sector, at the expense of its own citizens who paid the price of the austerity policies.
All those episods call for a reform of the European Central Bank.
Reforming the ECB – where to start
In principle Positive Money supports central bank independence in so far as it ensures a robust governance framework which can safeguard monetary policy from undue external pressures. However, as pointed out by Transparency International in 2016, the ECB independence framework is currently overstretched and does not match with an adequate level of transparency, integrity and accountability.
Such framework should also allow for a higher degree of cooperation between the ECB and fiscal policies.
Positive Money Europe’s aim is to reform the ECB and its legal framework in order to maximize its democratic accountability. We will develop research and campaigns in order to pursue those four goals.
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1. INCREASE THE DEMOCRATIC ACCOUNTABILITY OF THE ECB
The ECB is officially accountable to the European Parliament. However this accountability is weak because it is limited to official dialogues between the ECB and members of the European Parliament (the “monetary dialogue”). In addition, the Parliament only has a consultative role in the appointment process of board members, which are effectively nominated behind closed doors by the European Council.
We believe the Parliament should play a stronger role in scrutinizing the ECB’s activities, in particular by reinforcing the role of the monetary dialogue and making sure the ECB responds point by point to the Parliament’s annual report on the ECB. The Parliament should also have a stronger role in the appointment and revocation procedures of ECB board members.
2. CLEAR AND REVIEWABLE MANDATE
While the EU Treaty defines the the ECB’s primary objective as maintaining price stability, the treaty does not provide a definition of what price stability means. As a consequence, the ECB is currently self-determining its objective in a somehow loose way. This means the ECB can change its own objective if it is not reaching it, or it can justify not reaching it because of the unclarity of its definition.
We believe the ECB’s objective should not be self defined by the ECB, and neither should this objective be set in stone for an unlimited period. Instead, monetary policy objectives should be reviewed on a frequent basis, and adjusted if necessary, taking into account the ECB’s past performance in fulfilling it and the economic circumstances.
3. THE ECB MUST SUPPORT SOCIAL AND ENVIRONMENTAL GOALS
Beyond its price stability objective, the EU Treaty do bind the ECB to “support the general goals of the European Union” including on social and environmental domains. However in practice the ECB is doing close to nothing in those areas.
We believe the ECB must actively support social and environmental goals of the EU. The ECB should adjust its existing policies when they could be better contribute to the EU goals (for example by doing helicopter money instead of QE) ; and second, the ECB should engage in structural dialogues discussion with the European Parliament, the Commission and the European Investment Bank in order to find ways to facilitate investments into the green transition. There are many ways the ECB can play a more cooperative role without undermining its own independence.
4. TRANSPARENCY BY DEFAULT
Over the years, the ECB has shown multiple times a shocking degree of secrecy in its activities. For example the ECB is one of the only central banks that do not disclose the individual voting record of the members of its Governing Council, and has deliberately refused to provide documents to the European Court of Auditors regarding its management of the crisis as part of the Troika. The ECB also refuses to adopt the EU’s transparency register for lobbyists.
While the ECB has made some efforts in this direction, transparency remains the exception rather than the norm. We want to maximize transparency wherever possible.
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This compilation of research papers assess the quality of the exchange between the European Parliament and the ECBduring the “Monetary Dialogue”. The authors review the past five years of monetary dialogues and make policy recommendations on how to possibly improve the Monetary Dialogue. The notes by key monetary experts were requested in March 2014 by the Committee on Economic and Monetary Affairs (ECON).