The European Central Bank (ECB) has come under a lot of fire recently for its decision to stop accepting Greek bonds as collateral (see here) and for restricting Emergency Liquidity Assistance to the Greek banking sector (see here) to measly amounts (assessed on a weekly basis). On March 12 the ECB had raised the ELA limit by €600 mn to €69.4 bn. While this sounds impressive, the increase is minimal. These moves by the ECB are seen as politically motivated and Draghi has been accused of being Schaeuble’s partner (despite the very public differences between the two on other issues) in putting pressure on Greece to reach a deal with the Eurogroup. Is the ECB acting independently, and what do we understand by ‘institutional independence’?
Article 130 (ex Article 108 TEC)
When exercising the powers and carrying out the tasks and duties conferred upon them by the Treaties and the Statute of the ESCB and of the ECB, neither the European Central Bank, nor a national central bank, nor any member of their decision-making bodies shall seek or take instructions from Union institutions, bodies, offices or agencies, from any government of a Member State or from any other body. The Union institutions, bodies, offices or agencies and the governments of the Member States undertake to respect this principle and not to seek to influence the members of the decision-making bodies of the European Central Bank or of the national central banks in the performance of their tasks.
The ECB prides itself in not seeking or taking instructions from European Union institutions or bodies, from any government of an EU member state or from any other body in determining its price stability policies. I have previously complained about the ‘apolitical’ mandate of the ECB saying that considering the effect on the economy that the setting of interest rates has (to pick one of the most benign functions of the ECB), some degree of political input into the Bank’s decision- making would be at least desirable, if not required. It is no wonder that the institutional independence of the ECB does not improve public perceptions of the EU as a democratically deficient structure. If Draghi is being political now then, is this a good thing? Not if the Bank’s political action now is taken under the cover of ‘apolitical’ neoliberalism, aiming to push orthodoxy on a Greek government that has a popular mandate to reject it.
What follows is a summary of the legal basis for ECB independence prepared by my PhD student Pamela Nika (see here). It helps put things in perspective.
The ECB is able to act independently in making regulations or any other decisions, which fall within the scope of the tasks entrusted to the ESCB under the Treaty and its Statute, free of the influence of the Community institutions or national governments, without the obligation to seek assistance (See Article 34, ESCB Statute). This has direct links to the Bank’s history. The ECB was created in a period when the idea of independence for the central banking authority was developing rapidly in the international arena. There was a broad consensus that the independence would protect a currency from government influence and promote price stability and low inflation. The independent status of the ECB was guaranteed even before its creation, being now included in both EC Treaty and Statute of ESCB, rather than just secondary legislation.
I have discussed Institutional independence and its consequences in my work before (see here). It refers broadly to the ability of the monetary authority to act independently, as a separate (from the other government institutions) legal entity. Within the ESCB, both members of ECB and NCBs should be acting in accordance to their own responsibilities, regardless any governments’ or Community interference. Moreover, the members of ECB and NCBs are not obliged, while performing their tasks, to seek for assistance within the Committee or the respective governments (Article 108, EC Treaty; similarly, the issue is highlighted by Article 7, ESCB Statute). Thus, the ECB is able to act independently in making regulations or any other decisions, which fall within the scope of the tasks entrusted to the ESCB under the Treaty and its Statute. The ECB should act free of the Community institutions or national governments influence, with no commitment in consulting them. It is noteworthy that each EMU joining member was obliged to ratify in national law the independent status of their corresponding NCBs (Articles 108, 109 and 121, EC Treaty).
The ECB enjoys functional independence. This involves the vital powers and tools that should be assigned to the monetary authority in order to enable the accomplishment of its main goal: the price stability. In particular, the Eurosystem is empowered with the authority of composing and implementing monetary policy exclusively, and is the responsible body for the banknote issuance. Moreover, the ECB holds exclusive power in controlling the share capital and foreign reserve assets if they fall within the scope of the ESCB Statute (Article 30.1, ESCB Statute). The ECB power is limited in granting loans or other facilities to the participating member-countries (Article 101, EC Treaty). As a consequence, ECB tactics and actions cannot be influenced of important creditors-members of Eurozone associations and arrangements.
The regulatory powers assigned to the ECB by the Community Law as an added tool in pursuing its goals, place the ECB at the same line with the other Community Institutions’ regulatory competences, by providing the ECB with the power to impose binding and non-binding legal acts, with the status of secondary Community Law. Furthermore, another instrument attached to the powers of the Eurosystem is the ability to impose the appropriate sanctions in cases of non-compliance (Article 19, ESCB Statute). The ECB is also financially independent. This relates to the ability of central banks to cover and organize the funding of their operations and activities. The monetary income gained from the activity of Eurozone should be divided among all of the NCBs of the system; hence, it cannot be influenced by any governmental interference (Article 32, ESCB Statute).
It is important to remember that the actions adopted by the ECB are eligible for review of their legality by the Court of Justice in case they do not fall within the scope of ECB’s power, misapply, or violate the provisions of the Treaty (Article 230, EC Treaty and Article 35.1, ESCB Statute). In other words, in terms of the legality of its actions, ECB is treated identically the same as the Commission and the other Community institutions and it is subject to the general principle of Community law. This that has been confirmed by the Court of Justice of in its judgment in Commission v European Central Bank (OLAF) (C-11/00)  E.C.R. I-7147 that “the ECB, pursuant to the EC Treaty, falls squarely within the Community framework”.
Tsipras has been arguing that Greece’s problems can only be resolved by a political decision and he is right. At times of severe economic crisis and recession, selecting types of self-regulation over political control can be a particularly politically dangerous route to follow. As suggested above, using the example of the ECB, central bank independence ensures that monetary policy is determined solely by ‘economic’ concerns. This ensures the pursuit of policies deemed good for the ‘investment climate’. It also, however, dis-empowers governments; they are less able to control the economy or to pursue expansionary economic policies necessary to achieve wider social objectives. The current ‘political’ turn of the ECB is not being recognised, because it is hidden behind the veil of orthodoxy. This orthodoxy however is German ordoliberalism, pushed across the Eurozone despite the democratically expressed wishes of its people (like the Greeks). The pursuit of neoliberalism, or ordoliberalism in this case, is not apolitical. It is politics of the wrong kind and should be resisted. The ECB needs to consider the politics of Europe, not the politics of Germany.