European Central Bank Should Open Its Chamber of Secretsby
The European Central Bank wields more power now than at any point in its 14-year history. If it wants to use that power responsibly, it needs to be a lot more open with the people whose well-being it aims to ensure.
Thanks in large part to its lead role in fighting the euro area’s festering debt crisis, the ECB is taking on vast new duties. It has become a lender of last resort, supporting governments in their battles with skeptical markets. It will soon supervise the entire currency union’s banking system. All this comes on top of its regular job as maker of monetary policy for the 17 countries that use the euro.
At the same time, the central bank shares less information with the public than its counterparts in the U.S. and U.K. do. Like them, it announces its policy decisions, holds regular news conferences and provides public testimony to lawmakers. Yet it closely guards what its 23 governing council members discuss behind closed doors. The ECB’s rules don’t require it to say if a vote was taken, let alone who voted how. The central bank also waits 30 years to release minutes from its policy-making meetings. This means the deliberations from the ECB’s first meeting won’t appear until 2028.
The ECB’s approach to transparency prevents much-needed scrutiny and limits the effect of its policies. If economists, securities traders, elected officials, businesses, consumers and the news media can’t see the ECB’s decision-making process, they can’t be sure the central bank is weighing all sides. Without open and honest discussion, executives and traders don’t have a good sense of where interest rates are headed given the outlook for the economy, and monetary policy doesn’t have the desired effect in the marketplace. Worse, the lack of transparency robs the ECB of the credibility and legitimacy a modern central bank requires.
Other central banks took decades to come around to the view that more transparency is better. As recently as the 1990s, the U.S. Federal Reserve didn’t even reveal its short-term interest-rate target. Keeping markets in the dark, the logic went, would promote more trading as investors made conflicting bets. Officials also thought ambiguity would make it easier to change course -- hence the famously Delphic mumblings of former Fed Chairman Alan Greenspan.
Now the Fed releases minutes three weeks after each policy-making meeting, and current Chairman Ben S. Bernanke has moved to provide more guidance on the future path of interest rates. The approach has helped avoid unnecessary surprises and added to the potency of the Fed’s pronouncements.
We hope Europeans won’t have to wait decades for a similar awakening. Support for more transparency is growing at the ECB, including from Jens Weidmann, the president of Germany’s powerful Bundesbank. ECB President Mario Draghi says he is keeping an open mind, yet moves cautiously, possibly overly so, to avoid a public spat.
Oddly, governing council members, who are supposed to put the interests of the entire euro area above their individual countries’, worry that transparency would expose them to more political pressure from home. The opposite would seem true: If decisions were public, council members would want to demonstrate that they weren’t engaging in partisanship, and home-country politicians who tried to make them do so would be exposed.
At the very least, the ECB should match the Fed by releasing minutes of its meetings within three weeks -- or even two weeks, as the Bank of England does. It should also publish summaries of its policy discussions, preferably with names attached and definitely with each council member’s vote. Ideally, both the ECB and the Fed would go further, too, by releasing transcripts of meetings along with the staff analyses, economic models and projections that underpin their decisions, without waiting five years as happens now.
A central bank that isn’t transparent can’t be held accountable. An ECB without accountability risks losing the independence that is crucial to its mission.
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