Thursday, 20 September 2012

New ECB powers: the buck stops where?

Jana Mittermaier, a director at the Transparency International EU liaison office, writes at

On ECB powers she explains,
The last four years have seen its mandate stretched to the limit as it struggles to save the euro. It has overseen the bailouts of three EU member states, spent billions on the bonds of debt-laden countries and given €1 trillion in cheap loans to eurozone banks.
Whatever one thinks about the merits of these actions, they have had the effect of redistributing economic risks and rewards throughout the eurozone with only a veneer of democratic oversight.
The ECB President currently has a quarterly "dialogue" with the European Parliament and the institution responds to written questions from MEPs, but this falls far short of the powers of other national parliaments.
The UK parliament can summon representatives of the Bank of England to give evidence on monetary policy. The Swedish parliament can dismiss executives of the Riksbanken for misconduct and the US Senate is required to confirm presidential appointments to the Fed.
Unlike the UK and New Zealand, where central bank objectives are tightly specified by democratically elected governments, the ECB has free rein to interpret its legal mandate, sometimes controversially as we have seen.
Now the ECB is being granted even more powers. As announced by European Commission President Jose Manuel Barroso in his State of the Union address last Wednesday (12 September), the bank is to have responsibility for the supervision of 6,000 eurozone banks.
If member states agree and if you add to this the new bond-purchasing programme announced the previous week, this will arguably make the ECB the most powerful institution on the EU landscape right now.
And on ECB accountability she writes,
But its accountability mechanisms are woefully inadequate. This is despite the lip service paid by Barroso to "democratic oversight" in his speech and similar pronouncements by ECB chief Mario Draghi over the summer.
In return for the power to revoke banking licenses, fine banks up to 10 percent of their revenues, remove members of their board and - most importantly - co-ordinate future bailouts of failing banks using taxpayer funds, the Barroso proposal contains only the most cursory reference to the ECB's accountability to the European Parliament with no details as to how this will work.
The commission refers to "regular reporting and responding to questions [by the European Parliament]" which simply restates the status quo.
Indeed, despite all the professed concern for democratic legitimacy, the EU Council has decided that the European Parliament will be excluded from any significant role in shaping these proposals before they are implemented, an irony not lost on MEPs in their response last week.
She concludes,
The Barroso proposal represents the first real opportunity to rethink the transparency and accountability of the ECB in over a decade. To squander that opportunity now could be fatal to its aspirations for legitimacy.
Despite its noble intentions, it is no less vulnerable to conflicts of interest and corruption than any other EU institution.  
Yes, her comments on ECB powers are vital and her points on transparency are very important. The most important thing however is for member states to limit ECB powers, not grant it more power and compensate through increasing transparency. The euro area has committed exactly the same fatal (intentional) mistakes the Fed/congress made in the U.S.: bailing out banks with tax payer money, creating an abundance of moral hazard, pushing interest rates way below market and much more. It's wrong from a moral perspective and its theft. And it does not save nor help the economy, quite the contrary. Close the EMU and the ECB down so we don't have to spend time, money and other resources on creating a new Soviet Union of Europe.

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