ECB not happy with new powers of Estonian National Bank
Update: seems that I haven’t been entirely clear. What Estonia did was blurring the ‘Trias Politica’ by transferring mayor powers of the parliament to the central bank, which the central bank could, to an extent, use based on its own estimates of the economic situation. A highly anti-democratic move. The significance of the opinion: this seems to be a bridge too far even for the ECB
One of the advantages of being an economic historian is that you’re trained to penetrate seemingly impenetrable sources. The ‘opinions’ of the European Central Bank are such a dull and dreary source. But sometimes they yield highly important information about the present struggle for power in the Eurozone. If I understand this ECB opinion well:
A) Estonia wants to give its central bank the power to trigger constitutional cuts to government expenditures, based upon ‘nowcasts’ and forecasts of the actual deficit and GDP constructed by the central bank itself
B) The ECB does not like this, as this threatens the independence of the central bank
An excerpt, emphasis added:
First, as regards involvement in macro-economic forecasting … an NCB could become subject to guidelines or scrutiny by national or European authorities under Article 4(5) of Directive 2011/85/EU17. As a result, an NCB might be required to disclose its view of the economic outlook according to principles and/or a schedule different from that for publishing the economic projection it deems relevant for monetary policy purposes. This would represent an impairment of the independence of the NCB. Second, as regards the provision of assessments of fiscal policy18, the formal mandate to scrutinise government policies in the form of public opinions would put the NCB in a position that could regularly conflict with fiscal policy-making. The economic assessment of fiscal and macroeconomic developments is never entirely mechanical and always contains an element of judgement. It is thus easily subject to political controversy. This, in turn, could affect the working relations between the NCB and the government, affect the public perception of the NCB, as well as possibly undermine its independence. More generally, a formal mandate for an NCB to assess forecasts and fiscal developments implies a function for the NCB in the fiscal policymaking process. As an NCB is thus entrusted with a share of the responsibility for fiscal policy, the institutional separation between fiscal and monetary policy becomes blurred.
The opinion is funny, too. Making ‘nowcasts’ and the like for the purpose mentioned above is according to the ECB a government task, which leads to the next fundamentalist ECB gem:
Further, it is important to safeguard compliance with the monetary financing prohibition pursuant to Article 123 of the Treaty. The prohibition is essentially designed to prevent central banks from providing overdraft facilities or any other type of credit facility to the public sector. National legislation should not require an NCB to finance the performance of tasks incumbent on the government, without stipulating that the government will compensate the NCB for the discharge of such tasks. The ECB notes that the draft law does not provide for such compensation and this aspect would need to be addressed, if the national legislature decides to keep the draft law as currently drafted on this particular point
Here you can find the forecasting model of the Dutch Central Bank, entirely paid for by this bank. And yes, it does use this model to influence the public discussion.