Home > Uncategorized > Has the ECB to leave economic policy to the politicians?

Has the ECB to leave economic policy to the politicians?

Creative summary of this post by Henk de Vos

Will the extra-ordinary powerful position of the ECB come to and end?

The European Central Bank (ECB) is not only extra-ordinarily independent. It is, as there is no real countervailing power from a real Euro Area government, extra-ordinarily powerful (soft as well as hard power). And it does not hesitate to use its power, see these letters from Trichet, the former president of the ECB, to ‘Ireland’ and this letter from Trichet to Spain. To quote The Economist: these letters have an ‘imperious tone’. And, in my opinion, an ‘imperious content’.

The power of the ECB might however diminish. Today, the Advocate General of the Court of Justice of the European Union published his opinion about the Outright Monetary Transactions of the ECB (i.e. the open market policies which, according to macro textbooks, are part and parcel of conventional central bank policies!). Are these legal? The Advocate states that they are compatible with the treaties provided some conditions are met.  One of these is the next: 

However, given the significant role which the ECB plays in financial assistance programmes (design, approval and regular monitoring), its actions might in certain circumstances be perceived as being more than mere “support” for economic policy. Thus, in the event of the OMT programme being implemented, the ECB must, if the programme is to retain its character of a monetary policy measure, refrain from any direct involvement in the financial assistance programme that applies to the State concerned.

The assistance programmes in the first sentence are of course the same as the programme in the second sentence. And it is hard to understand ‘involvement’ as being anything else than ‘design, approval and regular monitoring’. Which means: no more Trichet style letters, anymore!

The European Court of Justice responded to a question of the German constitutional court. Which means that two things can happen. The German court does not approve – which means that the Euro is toast. Or the German court does approve – which means that the ECB has to leave the ‘Troika’ and to accept the conditions designed, approved and monitored by other institutions – I’m however not sure which institutions. May, just maybe, the European parliament could get some say in the matter. This might, however, be inconsistent with the German constitution.

  1. January 15, 2015 at 6:56 am

    Reblogged this on Arjen polku and commented:
    This is a bit from the Opinion of the Advocate-General of the ECJ that should get much more attention. It would be really good if the ECB has to leave the Troika and has to curb its meddling in economic policy.

  2. Souvarine
    January 15, 2015 at 9:09 pm

    I find the part you quotes in bold rather ambiguous. As I understand it, it could also be interpreted that way : “the ECB shouldn’t use monetary policy tools (open market operations) to ease financial conditions in a member state (like when the ECB bought some italian or spanish bonds in order to prevent their rates from rising up to the sky, if you want an exemple).

  3. Souvarine
    January 15, 2015 at 9:16 pm

    Sorry for the typos, I mix up my english with my french when I write too fast.

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