Mario Draghi. Crédit harrivicknarajah0 (Pixabay).

The European Central Bank : Under German influence? (1/2)

TRANSLATED BY MELANIE JOUD AND THOMAS SHACKLOCK

The arrival of Mario Draghi as president of the European Central Bank (ECB) in 2011 opposed the ordoliberalism put forward by Germany. Before that, in June, the ECB worshipped the German economic policy. But is a policy change really possible? To answer this, Le Journal International tried to decipher the ECB functioning.

Despite its importance, news on the ECB are rarely reported in the media. The ECB was created in June 1998. Helmut Kohl and then Gerhard Shroeder used it to push the “German model” at the extreme. But Mario Dragji becoming the new president of the ECB led to the resignation of the chief economist, Jurgen Stark and the president of the Bundesbank, Jens Weidmann. The latter considered the EBC was breaching treaties and referred the matter to the Constitutional Court in Kalsruhe.

Divided both geographically and institutionally

The president, the vice-president and other members of the Executive Board are appointed after an agreement is reached between the heads of state of government from the member states. The Council of Ministers recommends this appointment after consulting the European Parliament and the Governing Council. The authority and professional experience of these two institutions in the banking or monetary sectors are acknowledged. In other words, the members of the EBC must prove their worth in the banking sector.  Even if this seems to be logical, the ECB maintaining close relationship with private banks questions the policies carried out. For instance, Mario Draghi previously worked for Goldman Sachs.

The ECB and its members are required by treaties not to come under external influences. Michel Dévoluy, an economist and academic at the Strasbourg University distinguishes 4 independences to which the ECB benefits from: formal, institutional, functional and financial. He justifies that “the necessity to distinguish between the power to make spending and creating money. A government that chooses to re run for an election could claim to reduce the interest rates in front of voters. This would stimulate the economy in the short term but would fuel inflation in the long term, reducing public debt”.

An independent institution, but not isolated

The European Parliament controls the ECB. Firstly, when appointing the members of its executive body. It is required that the European Council must be consulted during the appointment of the six directory members of the ECB. Each candidate recommended by the Council of Ministers is consulted by the Committee on Economic on Monetary Affairs (ECON) of the European Union. Then, this committee gives its opinion on the recommended applications to the Council of Ministers. The council remains free to maintain its recommendation and to go beyond a potential negative decision.

Each year, the ECB must publish a report every year presented by the president to the Council of Ministers and to the European Parliament. This can lead to a general debate and result in the vote of a non-legislative resolution. The ECB must also publish a monthly bulletin on the European System of Central Banks (ESCB).

The Treaty on the Functioning of the European Union allows promoting a frequent dialogue between the ECB and the European Parliament. The president of the ECB and the other directory members can, at the request of the European Parliament or on their own initiative, be heard by the appropriate commissions of the European Parliament. On this basis, a “monetary dialogue” has been established: the president of the ECB is heard four times per year by the ECON. During the interviews, he gives account of the ECB’s monetary policy and its other missions. Before each meeting, a panel of experts are charged by the European Parliament to prepare notes on some specific questions that are then published on the website. The president of the ECB integrates those subjects in his original presentation. It is then followed by a question/answer session with the deputies.

« To improve the public understanding»

Each deputy can ask six questions and request a written answer from the ECB. The answers are then published on the website of the Parliament. The will of transparency is clearly shown. It attempts to “improve the public understanding of its policies and its decisions”. A press conference is held by the president and vice-president after each meeting of the Governing Council. Since 2015, the ECB publishes a report of these meetings dedicated to the monetary policy.

But the ECB avoids giving account of the voters’ identity, preventing the possible pressure that could be put by the member state where they come from. The members of the Governing Council regularly intervene, before specific communities or in the mainstream press. Another informal way to exchange, during which the ECB takes account of its acts.

Considering the ECB’s independence, it seems complex to influence its policy. But of what policy are we talking about? Is the ECB as independent as it seems to be?

Banner picture : Mario Draghi. Crédit harrivicknarajah0 (Pixabay)

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