Democratically Embedded Central Banking
During the immediate Corona crisis, the European Central Bank was able to act quickly and decisively to stabilise financial markets, including those for government bonds. Its formal independence from democratic decision-making made its response faster than any other EU institution. However, monetary policy is inherently political, with important distributional and power-political consequences, as the German Constitutional Court’s recent ruling in the Weiss case made clear. It is problematic, then, that the ECB is not accountable to any elected or otherwise directly democratically legitimised body.
After Corona, three measures could be introduced, via treaty change, to close this democratic deficit without diminishing the operational and technical expertise that the ECB has built in recent decades.
First, the ECB’s mandate could be given an automatic 10-year sunset clause. Written mandates are crucial for squaring operational independence with democratic legitimacy. But times change, economies undergo transformations, and written mandates are subject to shifting interpretation. As a result, a certain drift and divergence over time is natural between the mandate that is de facto in force, and the mandate that the central bank’s sovereign, the people, would like to see. Currently, a change to the written mandate requires consent from 68 distinct political bodies, among them all EMU member states, so that no gap will be closed if it benefits just one of these bodies. A sunset clause would prevent this hold-up and offer the opportunity to deliberate once a decade whether the existing mandate is still the desired one.
Second, it is not just the goals of monetary policy — codified in the ECB’s mandate — that are political, but also its instruments. Since the policy toolkit, including operational targets and specifications of how they are achieved, is more malleable, this could be reviewed on a five-year schedule. As the central bank needs to retain the possibility to act swiftly during a crisis, it could continue to introduce new tools as it sees fit. However, new instruments could start life with a sunset clause, expiring 2 years after their first introduction unless ratified within that period.
Third, both mandate and toolkit revisions must be conducted by a body. To this end, a Euro-Parliament could be created, elected or selected by sortition, either from among the demos at large or from among member state parliamentarians. This parliament, supported by specialist staff to provide expert input, would substitute for the Eurogroup, appoint the ECB governing council, and conduct the 5- and 10-year revisions of the ECB mandate and toolkit. It could also take the Eurogroup’s place in deciding on intergovernmental agreements, memoranda, treaties, bailouts, and bail-ins. To ensure that a Euro-Parliament represents all Europeans, sortition and/or quotas could be used in selecting its members.
The overarching thrust of this proposal is a macro-financial Eurozone architecture that shifts fiscal and monetary power from technocratic and private financial actors to public, democratically legitimized actors at the national and European level. As such, it connects to nearly all other proposals.
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