The ECB Is More Powerful So Maybe It Should Be More Accountable, Campaigners Say

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  • Transparency International EU recommends measures to ECB
  • ECB says some measures are in place, others not appropriate

The European Central Bank is no longer accountable enough in view of its enhanced powers and the reach of its decision-making, according to Transparency International EU.

If the ECB wants to preserve its cherished independence it can’t hide behind a technocratic image, the report says. Among other recommendations, it should bolster its transparency, regulate contact with lobbyists and improve an “outdated” system for whistle-blowing. It needs clearer cooling-off periods before former staff move to the private sector, and should dare to speak out against inaccurate criticism of the euro.

The ECB has come under political fire in the course of its response to the global financial crisis and its European aftermath, which included bond purchases, negative interest rates and participation in bailout programs for indebted states. While the unelected monetary officials have insisted they remain focused on their mandate of restoring price stability, they’ve been accused of burdening poorer nations and exacerbating inequality.

“The extraordinary measures taken by the ECB since 2008 have tested the ECB’s mandate to breaking point,” Transparency International EU said. “The ECB’s accountability framework is not appropriate for the far-reaching political decisions taken by the Governing Council.”

Selected Transparency International EU Recommendations to the ECB
  • Better management of conflicts of interest, including declarations of interest and assets 
  • Clearer rules on cooling-off period before former officials accept private-sector jobs
  • Update the framework for whistleblowing
  • Much higher level of transparency on ECB’s meetings with lobbyists, including joining the EU Transparency Register

The report also recommended that the ECB should seek an agreement with the European Parliament and euro-area finance ministers on approval procedures for any crisis measures that go beyond its mandate, and that euro-area politicians should sign off on any monetary support that includes conditions.

That’s a proposal that might be seen as impinging on central-bank independence. The ECB responded in a statement by saying some of the non-governmental organization’s recommendations have already been implemented, but some fall outside its mandate.

“When it comes to politicians, independence is very much in the eye of the beholder,” Executive Board member Benoit Coeure said at an event to discuss the report in Brussels on Tuesday. “When they like what we do, we are independent. When they don’t, we are overreaching.”

As an example of the fine line officials sometimes have to tread, Coeure cited the Greek crisis of 2015, when talks on the nation’s EU-led bailout were stalled and the government was close to running out of money. The Governing Council imposed limits on the exposure of Greek banks to the country’s sovereign debt as a condition of them receiving the Emergency Liquidity Assistance that was keeping them alive.

“Not doing so would have been in effect the ECB granting liquidity to the Greek government, which was something the elected representatives in the Eurogroup had decided against,” he said. “That would have been not correct, a violation of monetary financing, and also politically wrong.”

Coeure has been behind efforts to improve transparency at the central bank after an incident in May 2015 when he inadvertently disclosed market-sensitive information at a private event.

That episode led to an investigation by the European Union ombudsman, who also opened an inquiry this year into Draghi’s membership of the Group of 30, an elite group of economic leaders.

Bank of England

The Bank of England became the latest major central bank to be exposed for inadequate governance when Deputy Governor Charlotte Hogg resigned this month after only a few weeks in the role. Her testimony to lawmakers revealed she hadn’t told her employer that her brother works for Barclays Plc, which the BOE is partly responsible for regulating.

The Transparency International EU report notes that after a first decade for the ECB that was largely “plain sailing,” it then had to deal with a double-dip recession, sovereign crises and a three-year battle to stave off deflation that it is only now starting to win. In that time, the central bank went “far beyond” its narrow inflation mandate, including involvement in designing the conditions for countries receiving EU aid and participating in the troika that oversaw bailouts from Greece to Ireland. The Frankfurt-based institution has also taken on the task of supervising the region’s banks.

While some of these developments are a consequence of politicians being “all too keen to shirk their responsibilities,” they also add to the risk of “mission creep,” according to the report. That requires a balance between stronger oversight from elected bodies, such as the European Parliament, and more openness.

Fake News

“In critical situations, technocratic policy issues invariably become political and draw the ECB into political negotiations that are inconsistent with the textbook notion of central-bank or supervisory independence,” says the report, which was authored by Benjamin Braun, a political economist at Harvard University. “There are only two remedies: greater democratic control, and thus less independence, or, since that may not be desirable, more transparent decision-making and communication.”

The report praises Draghi for speaking to national parliaments to engage with member states. In an age of populism and so-called fake news, it says the ECB should keep up efforts to make its voice heard.

“The ECB should not shy away from countering politically motivated statements that are factually wrong or misleading,” according to the report. “Exaggerating the extent to which its work is ‘purely technical’ may stand in the ECB’s way when it comes to engaging in public debates about the euro.”