ABSTRACT
The European Central Bank (ECB) has the power to decide over monetary policy in the Euro-zone.1 Its decisions have a tremendous impact on the lives of European citizens, affecting inflation, unemployment, and interest rates. The ECB makes policy independently from the democratically elected institutions of the European Union and its member states. Comparative studies of central banks show that the ECB has an unusually high degree of independence (Amtenbrink 1999). The rationale for this independence – founded in the economic theory of time-inconsistency – is that elected politicians are poor decision-makers when it comes to monetary policy (Kydland and Prescott 1977). Politicians care about being re-elected, not about the long-term health of the economy. If they can, they will use their powers to manipulate interest rates and money supply during election years, regardless of the longterm damage that may result. If the ECB is to perform well in its monetary policy, then, it must be able to take decisions without pressure from public opinion or from short-sighted elected politicians. The value of central-bank independence has been widely accepted among
both academics and practitioners, leading to a global trend to cut ties between governments and central banks (McNamara 1998). Independent central banks, in this view, give credibility to the monetary policy being pursued. Market actors trust independent banks to focus on price stability irrespective of public opinion; and election years no longer represent uncertainty, or tempt policymakers to resort to inflationary policies. Paradoxically enough, however, there is also broad agreement that the ECB and other central banks must be ‘democratically accountable’. According to a common position on the matter, the ECB should be surrounded – precisely because it is unusually independent – by particularly stringent mechanisms for accountability (Trichet 2001). But how can an ‘agent’ be both independent and accountable? If it anticipates being held accountable for its actions by the ‘principal’, is it not less independent by definition? Not surprisingly, perhaps, the position of the ECB itself and of the mem-
bers of its Executive Board is that we can have the best of both worlds (see, for example, Issing 1999; Padoa-Schioppa 2000; Trichet 2001). The ECB, according to this argument, is an example of an institution which has been given both a high degree of independence (which serves to safeguard efficient
conclu-studies measuring the accountability of different central banks (Briault et al. 1996; Eijffinger and de Haan 2000; Bini-Smaghi and Gros 2001). According to the indices used in these studies, the ECB is not at any rate less accountable than are those central banks with a lower degree of independence from political institutions. If these studies are any indication, then, a negative relationship between independence and accountability may not be inevitable. In this chapter, I analyse two of the arguments made in this debate. First, I
discuss the claim advanced by the ECB: that a negative relationship between independence and accountability is not inevitable, and indeed that independence and accountability are ‘two sides of the same coin’. Second, I scrutinise the argument that the ECB is subject to a sufficient level of democratic accountability. I find that the idea that the ECB encompasses the best of both worlds – independence and accountability – relies on a missing link between accountability and transparency. The illusion of accountability, to cite the theme of the book, is upheld by an unsustainable assumption that transparency – and in particular the ECB’s version of it – is a sufficient condition for accountability. In practice, press conferences have become a substitute for popular sanctions. Irrespective, therefore, of why we prize accountability in the first place – for the sake of democracy, legitimacy, or efficiency – the ECB is unlikely to have enough of it.
