Student Number: 40039049

Module Code: PAI 7052

Title of Policy Brief Challenge: Increasing the democratic

accountability of the ECB.

Word Count: 2,000

Appraising Frankfurt:

Increasing the democratic

accountability of the ECB

A policy brief prepared for EU member state

governments

Contents

Executive summary 1

The ECB and democratic accountability

context 1

The ECB and democratic accountability

significance 2

Policy critique 3

Policy recommendations 5

Bibliography 7

1

Executive summary

This policy brief explores the possibility of increasing the democratic accountability of the

European Central Bank (ECB) to the 28 European Union (EU) member state governments.

The brief:

defines and contextualises the issue of democratic accountability within this key

institution;

explains why its significance has grown since the economic crisis;

critiques both policy being implemented and suggested by academics and think-tank

experts and

suggests recommendations and policy implementation based on this critique.

Chiefly, the document advises that accountability must be further extended proportional

to the ECB’s recent increase in monetary and supervisory powers. It provides policy

recommendations concerning the ‘monetary dialogue’, the EU Treaties’ discretionary

language concerning the ECB’s monetary and supervisory responsibilities and the

creation of a task force to investigate obstacles to increased democratic accountability.

The ECB and democratic accountability context

In an analysis of ECB accountability, de Haan, Eijffinger and Waller note that accountability

refers to ‘an explanation to the entities to which a central bank is accountable why a certain

decision is made.’1 In a democratic society ‘it is up to elected politicians to decide on the

explicit definition and ranking of objectives of monetary policy’ in addition to ‘the disclosure

of actual monetary policy’ and ‘who bears final responsibility.’2

The ECB’s governance structure renders democratic accountability in its strictest

form difficult to achieve as officials, directly elected to their positions by EU member state

electorates, are absent from all three levels - the General Council, the Governing Council and

the Executive Board. EU/Eurozone member states’ Central Bank governors are appointed by

1 De Haan, Eijffinger and Waller, The European Central Bank: credibility, transparency and centralization

(London, 2005), p. 108. 2 Ibid.

2

member state governments while the ECB President, vice-President and the four other

members of the Executive Board are ‘appointed by the European Council, acting by a

qualified majority…on a recommendation from the Council after it has consulted the

European Parliament and the Governing Council.’3 Although Members of the European

Parliament (MEPs) and Heads of State or Government of EU member states are directly

elected by their corresponding political constituencies, it is clear that the ECB’s own

democratic accountability is grounded on that of its sister institutions and EU member state

governments and Heads of State, which are ‘themselves democratically accountable either to

their national Parliaments, or to their citizens.’4 This case of institutional design failure within

the ECB is representative of a problem that is discernible at the Eurozone level.5

The ECB and democratic accountability significance

Although de Hann, Eijffinger and Waller’s 2005 comparative study on the accountability of

several key central banks, including the ECB, demonstrates that the latter’s democratic

accountability has been of concern to EU integration academics from the mid-2000s, the

significance of tackling this issue has escalated particularly since the global financial crisis

(2007-2008) and the Eurozone sovereign debt crisis (2009-).6

This has resulted due to the EU adopting the ‘six pack’ and ‘two pack’ of legislative

measures in addition to the enforcement of the Fiscal Compact Treaty (2013) and the

establishment of a banking union and the European System of Financial Supervision (ESFS)

intended to reinforce economic governance. The ECB and its new supervisory board are

involved in the banking union via the Single Supervisory Mechanism (SSM) as ‘the central

prudential supervisor of financial institutions’ in the Eurozone.7 Within the ESFS, the ECB

provides the European Systemic Risk Board’s (ESRB) secretariat and the ECB President also

performs the chairperson role.

3 EUR-Lex, ‘PROTOCOL (No 4), Article 11 (2) Consolidated version of the Treaty on European Union and the

Treaty on the Functioning of the European Union’ (http://eur-lex.europa.eu/legal-

content/EN/TXT/?uri=CELEX:12012M/TXT) (20 May 2016). 4 EUR-Lex, ‘Article 10 (2) TFEU Consolidated version’ (http://eur-lex.europa.eu/legal-

content/EN/TXT/?uri=CELEX:12012M/TXT) (21 May 2016). 5 De Grauwe and Ji, ‘Correcting for the Eurozone design failures: the role of the ECB’ in Journal of European

Integration, 37 (7), (2015), pp. 739-754. 6 De Haan, Eijffinger and Waller, The European Central Bank, pp. 111-13. 7 European Commission, ‘Banking union’ (http://ec.europa.eu/finance/general-policy/banking-

union/index_en.htm) (17 May 2016).

3

Bauer and Becker note that the ECB will ‘be entrusted with direct supervision of the

most significant banks (as well as those receiving direct financial assistance from EU

facilities) and monitoring of national supervision of less significant banks.’8 These actions

have ‘extensively empowered’ the ECB, according to da Conceição-Heldt and strengthened

the argument for enhanced democratic accountability of the ECB to EU member state

governments proportional to the ECB’s increased responsibilities.9

Policy critique

The ECB draws its constitutional powers from the Treaty on the Functioning of the European

Union (TFEU) and the Treaty on European Union (TEU). TFEU Article 129 (2) compels the

ECB to make quarterly reports regarding ‘the activities of the ESCB’ and to annually ‘report

on the activities of the ESCB and on the monetary policy of both the previous and the current

year’ to all the main EU institutions bar the CJEU.10

Under Article 284 (3), the ECB

President or other Executive Board members are enabled to be ‘heard by the competent

committees of…Parliament.’11

The ECB website notes that the bank goes ‘beyond the

statutory obligations in its regular reporting’ as it publishes an Economic Bulletin every six

weeks in addition to Governing Council members’ speeches and the president’s and vice-

president’s attendance ‘at the regular press conferences’ following the Governing Council’s

monetary policy meetings.12

However, the ECB is not compelled to attend before Parliament or its competent

committees. Similarly, Article 34 (2) indicates that the ECB retains ultimate discretion over

whether ‘to publish its decisions, recommendations and opinions.’13

Moreover, there are

limited constitutional methods available for its sister institutions to hold the ECB

democratically accountable. Only the Court of Justice of the European Union (CJEU) is

empowered to review or interpret the ECB’s actions or omissions ‘in the cases and under the 8 Bauer and Becker, ‘The unexpected winner of the crisis: the European Commission’s strengthened role in

economic governance’ in Journal of European Integration, 36 (3), (2014), p. 224. 9 Da Conceição-Heldt, ‘Why the European Commission is not the “unexpected winner” of the Euro crisis: a

comment on Bauer and Beecker’ in Journal of European Integration, 38 (1), (2015), p. 99. 10 EUR-Lex, ‘Article 129 (2) TFEU, Consolidated version’ (http://eur-lex.europa.eu/legal-

content/EN/TXT/?uri=CELEX:12012M/TXT) (21 May 2016). 11 EUR-Lex, ‘Article 284 (3) TFEU, Consolidated version’ (http://eur-lex.europa.eu/legal-

content/EN/TXT/?uri=CELEX:12012M/TXT) (21 May 2016). 12 European Central Bank, ‘Accountability’

(https://www.ecb.europa.eu/ecb/orga/accountability/html/index.en.html) (22 May 2016). 13 EUR-Lex, ‘Article 34 (2) TFEU, Consolidated version’ (http://eur-lex.europa.eu/legal-

content/EN/TXT/?uri=CELEX:12012M/TXT) (21 May 2016).

4

conditions laid down’ in the TFEU14

and decide whether ECB members be dismissed or

‘compulsorily retired.’15

However, this cannot be considered a strict democratically

accountable method as CJEU judges are appointed by member states’ governments rather

than directly elected as in the case of MEPs, for example.

The ‘monetary dialogue’

Within the last decade the ECB President’s (at least) quarterly appearances before the

Parliament’s Economic and Monetary Affairs (ECON) Committee (the ‘monetary dialogue’)

to discuss the ECB perspective on the economic situation has emerged as being of ‘central

importance’ as it ‘offers a chance to (be seen to) hold the ECB to account.’16

Hodson’s doubt

about whether this is being undertaken ‘sufficiently’17

is shared by Claeys, Hallerberg and

Tschekassin who are unconvinced about whether the ‘monetary dialogue’ functions as ‘an

effective assessment of the performance of the ECB.’18

Indeed, the latter suggest ways for the

ECON Committee to further gain from the dialogue, for example by reviewing its

performance towards its primary and secondary objectives and increasing the prominence of

the chairperson’s role.19

14 EUR-Lex, ‘Article 35 (1) TFEU, Consolidated version’ (http://eur-lex.europa.eu/legal-

content/EN/TXT/?uri=CELEX:12012M/TXT) (21 May 2016). 15 European Central Bank, ‘The accountability of the ECB’

(https://www.ecb.europa.eu/pub/pdf/other/pp45_57_mb200211en.pdf?c58502c697c23104a7f235642f3a5c05)

(23 May 2016). 16 Hodson, ‘Managing the Euro’ in J. Peterson and M. Shackleton (eds) (3rd edn), The institutions of the

European Union (Oxford, 2012), p. 214. 17 Ibid. 18 Claeys, Hallerberg and Tschekassin, ‘European Central Bank accountability: how the monetary dialogue

could evolve’, Bruegel Policy Contribution, 4 (March 2014), p. 7. 19Ibid, p. 2.

5

Policy recommendations

When considering policy recommendations, it is important to be mindful of Article 130

TFEU which asserts the ECB’s independence.20

Monetary dialogue codification in EU Treaties

This brief recommends that the ‘monetary dialogue’ be codified within the EU

Treaties in order to give it legal grounding.

This can be accomplished under the Lisbon Treaty’s simplified revision

procedure by ‘an amendment of the EU's internal policies and actions’ which

requires a unanimous vote by the European Council having consulted with the

Commission, Parliament and the ECB. 21

The document advises that the monetary dialogue’s current arrangement be

codified by this amendment in addition to a provision which compels the ECB

to discuss its activities in relation to the SSM and the ESRB given the ECB’s

clear prominence on the SSM supervisory board and the ESRB.

Replace discretionary language with binding instructions

This brief’s critique provides several examples where discretionary language

is utilised regarding ECB responsibilities. Without the force of legally binding

instructions then these responsibilities resemble mere suggestions.

This paper advises member state governments to lobby for relevant EU Treaty

articles to be amended in order to replace the existing discretionary language

with their mandatory substitutes.

The amendment of the Treaty articles can be completed under the Lisbon

Treaty’s simplified revision procedure as specified above.

Establish task force to investigate obstacles to greater democratic accountability

Where it is not possible to recommend legislative or political measures due to

Article 130 TFEU, this brief advises that member state governments, via the

20 EUR-Lex, ‘Article 130 TFEU, Consolidated version’ (http://eur-lex.europa.eu/legal-

content/EN/TXT/?uri=CELEX:12012M/TXT) (21 May 2016). 21 EUR-Lex, ‘Revision of EU Treaties’ (http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=uriserv:ai0013) (22

May 2016).

6

European Council in accordance with Article 15 TFEU, consider establishing

a task force to investigate obstacles to greater democratic accountability.22

Suggested topics include editing of TFEU Article 130 in order to balance ECB

independence with democratic accountability, making ECB Executive Board

positions directly electable by Parliament or the EU electorate and tackling the

democratic deficit throughout the EU.

The task force created is expected to be comparable in approach to the one

established by the European Council in March 2010 to determine policy for

achieving strengthened economic governance in both the EU and the

Eurozone.23

22 EUR-Lex, ‘Article 15 TFEU, Consolidated version’ (http://eur-lex.europa.eu/legal-

content/EN/TXT/?uri=CELEX:12012M/TXT) (21 May 2016). 23 European Council, ‘Strengthening economic governance in the EU’ (Brussels, 2010), pp. 1-16.

7

Bibliography

Bauer, M., and Becker, S., 2014. The unexpected winner of the crisis: the European Commission’s

strengthened role in economic governance. Journal of European integration. 36 (3), pp. 213-229.

Da Conceição-Heldt, E., 2016. Why the European Commission is not the “unexpected winner” of the

Euro crisis: a comment on Bauer and Becker. Journal of European Integration. 38 (1), pp. 95-100.

De Grauwe, P. and Ji, Y., 2015. Correcting for the Eurozone design failures: the role of the ECB.

Journal of European Integration. 37 (7), pp. 739-754.

De Hann, J., Eijffinger, S. and Waller, S., 2005. The European Central Bank: credibility,

transparency and centralization. London: Massachusetts Institute of Technology.

European Council, 2010. Strengthening economic governance in the EU: report of the task force to

the European Council. Brussels: European Council, pp. 1-16.

EUR-Lex, 2016. ‘Consolidated version of the Treaty on European Union and the Treaty on the

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European Central Bank, 2016, ‘Accountability’ [online]. Available at:

<https://www.ecb.europa.eu/ecb/orga/accountability/html/index.en.html> (accessed 22 May 2016).

European Central Bank, 2002, ‘The accountability of the ECB’ [online]. Available at:

<https://www.ecb.europa.eu/pub/pdf/other/pp45_57_mb200211en.pdf?c58502c697c23104a7f235642f

3a5c05> (accessed 23 May 2016).

European Commission, 2016, ‘Banking union’ [online]. Available at:

<http://ec.europa.eu/finance/general-policy/banking-union/index_en.htm> (accessed 17 May 2016).

Hodson, D., 2012. Managing the Euro: the European Central Bank. In: J. Peterson and M. Shackleton,

eds. 2012. 3rd edn. The institutions of the European Union. Oxford: Oxford University Press, pp. 199-

218.

Richardson, J. and Mazey, S. eds. 2015. 4th edn. European Union: power and policy-making. Oxon:

Routledge.

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Solórzano Borragán, eds. 4th edn. European Union politics. Oxford: Oxford University Press, pp.

341-353.