The European Central Bank (ECB) urgently needs to increase democratic oversight and accountability if the euro is to survive the next crisis, according to a new report on the ECB’s governance by anti-corruption watchdog Transparency International EU.
The report said a lack of political leadership and decisive reform has led the ECB to “stray into the area of political decision-making, without appropriate democratic scrutiny.”
This has been accompanied by a marked decline in public trust at a time when the ECB has been granted extensive new powers to supervise major European banks, the report said.
“While the ECB has saved the single currency more than once, the absence of a Eurozone finance ministry as counterpart to the ECB means that the Bank has had to stretch its mandate to breaking point,” said Leo Hoffmann-Axthelm, research and advocacy coordinator at Transparency International EU.
“If the euro is to survive the next crisis, then EU Member States need to stop hiding behind the technocrats at the ECB, overcome political inertia and get serious about reforming the Eurozone.”
The report said that preserving the ECB’s independence “limits its accountability to citizens” and recommended the ECB should compensate this by increasing its transparency.
“The ECB should take immediate steps, such as automatically publishing its decisions and opinions and being more open about the political choices it faces, rather than insisting its decisions are purely technical,” said Transparency International EU.
“For example, at the height of the Greece crisis in 2015 the ECB repeatedly limited the ceiling on Emergency Liquidity Assistance for the country’s banks without publicly announcing it.
“The ECB’s discretionary powers allowed it to put pressure on Greek banks while negotiating bailout reforms with the Greek government as part of the Troika of international creditors.
“Similar dynamics could play out in the upcoming negotiations with Greece, and with the current recapitalisation of Italian lender Monte dei Paschi di Siena, which threaten the Eurozone’s current fragile stability.”
Hoffmann-Axthelm added: “Clearly decisions which affect the fate of whole economies should have some kind of democratic oversight.
“The ECB should not be in a position to pull the plug on a country’s euro membership, a decision ultimately down to democratically elected politicians.”
The report also said the ECB had in recent years made improvements to transparency by publishing governing council minutes and diaries of executive board members.
However, it said there were flaws in the way the ECB managed conflicts of interest, given that governing council members did not disclose declarations of interests and assets.
It said whistleblowing policies were fragmented and outdated and should be updated in line with international best practice.
“In view of the ECB’s responsibilities for supervising major banks, it should join the Transparency Register for EU lobby organisations,” said the group.
The report made 18 specific recommendations on how the ECB could improve its governance, including:
- The ECB should seek an agreement with the Eurogroup and the European Parliament outlining political approval procedures for measures which are necessary but go beyond the mandate of the ECB, e.g. ECB letters with specific recommendations to governments.
- The ECB should make it a rule to publish its decisions, recommendations and opinions.
- The ECB should report to the European Parliament on any positions it takes in meetings of international regulatory bodies, such as the Basel Committee.
- The ECB should overhaul and publish its whistleblowing policy to ensure that individuals feel safe in coming forward and reporting potential cases of corruption at the ECB.
In response, the ECB emphasised that it is directly accountable to the European Parliament (EP).
“Good conduct and governance are essential for securing public trust,” said ECB President Mario Draghi.
“It is the duty of European institutions to further strengthen their legitimacy both by reinforcing their democratic accountability and by showing that they meet the objectives they’ve been entrusted with.”