Saturday

6th Mar 2021

Opinion

New ECB powers: the buck stops where?

  • Compared to national central banks in the UK and Sweden, the ECB is a democratic black hole (Photo: Valentina Pop)

When Alan Greenspan was chairman of the US Federal Reserve, visitors to his office were confronted with a sign on his desk which said "the buck starts here." It was a wry reminder of the power that the Fed wields in the world's largest economy - the power to print money.

It is the defining power of central banks the world over and the main reason that they jealously guard their independence from political pressure. One just has to look at hyperinflation in Zimbabwe to see what happens when central bank policies are dictated by political expediency.

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That independence should not be confused with an absence of accountability. Like any other institution in a democratic society, central banks should be subject to proper scrutiny.

How much transparency this entails, how much accountability and to whom they should be accountable - where exactly the buck stops - are issues which have become the subject of increasingly heated debate.

Nowhere is this debate more heated than in the EU right now, thanks to the European Central Bank's (ECB) pivotal role in resolving the crisis.

The last four years have seen its mandate stretched to the limit as it struggles to save the euro. It has overseen the bailouts of three EU member states, spent billions on the bonds of debt-laden countries and given €1 trillion in cheap loans to eurozone banks.

Whatever one thinks about the merits of these actions, they have had the effect of redistributing economic risks and rewards throughout the eurozone with only a veneer of democratic oversight.

The ECB President currently has a quarterly "dialogue" with the European Parliament and the institution responds to written questions from MEPs, but this falls far short of the powers of other national parliaments.

The UK parliament can summon representatives of the Bank of England to give evidence on monetary policy. The Swedish parliament can dismiss executives of the Riksbanken for misconduct and the US Senate is required to confirm presidential appointments to the Fed.

Unlike the UK and New Zealand, where central bank objectives are tightly specified by democratically elected governments, the ECB has free rein to interpret its legal mandate, sometimes controversially as we have seen.

Now the ECB is being granted even more powers. As announced by European Commission President Jose Manuel Barroso in his State of the Union address last Wednesday (12 September), the bank is to have responsibility for the supervision of 6,000 eurozone banks.

If member states agree and if you add to this the new bond-purchasing programme announced the previous week, this will arguably make the ECB the most powerful institution on the EU landscape right now.

But its accountability mechanisms are woefully inadequate. This is despite the lip service paid by Barroso to "democratic oversight" in his speech and similar pronouncements by ECB chief Mario Draghi over the summer.

In return for the power to revoke banking licenses, fine banks up to 10 percent of their revenues, remove members of their board and - most importantly - co-ordinate future bailouts of failing banks using taxpayer funds, the Barroso proposal contains only the most cursory reference to the ECB's accountability to the European Parliament with no details as to how this will work.

The commission refers to "regular reporting and responding to questions [by the European Parliament]" which simply restates the status quo.

Indeed, despite all the professed concern for democratic legitimacy, the EU Council has decided that the European Parliament will be excluded from any significant role in shaping these proposals before they are implemented, an irony not lost on MEPs in their response last week.

The commission's proposals with regard to transparency give no less cause for concern.

Access to ECB documents will ultimately be regulated by the ECB itself, which has taken a highly restrictive line on this in the past, notably in refusing to release Jean-Claude Trichet's communications with the Irish government immediately preceding its request for EU bailout funds.

The commission proposals say that the bank "may decide to publish its decisions, recommendations and opinions," but it does not publish minutes of meetings or voting records, unlike its peers in the UK and Sweden.

The commission also says at several points that there is a need to ensure "the ECB's independence from undue influences by national authorities and market participants."

We at Transparency International wholeheartedly agree.

But supervision is a contact sport and if the ECB is to make decisions about the fate of individual banks, the public should also be able to assess whether its officials have been subject to undue influence through lobbying.

We think it is high time that the ECB joined the EU transparency register on lobbying, together with the European Commission and the European Parliament.

The Barroso proposal represents the first real opportunity to rethink the transparency and accountability of the ECB in over a decade. To squander that opportunity now could be fatal to its aspirations for legitimacy.

Despite its noble intentions, it is no less vulnerable to conflicts of interest and corruption than any other EU institution.

Jana Mittermaier is a director at the Transparency InternationaI EU liaison office

Disclaimer

The views expressed in this opinion piece are the author's, not those of EUobserver.

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