It Takes Two to Tango
Economic analysis teaches us that a necessary, though not sufficient, condition for effective monetary policy is central bank transparency, which includes accountability for its policy actions. But transparency, like the tango, takes two to dance. For the European Central Bank (ECB) to be effectively accountable, politicians must successfully exercise their right and duty to hold the Central Bank to account. The European Parliament must take a qualitative leap in its relations with the ECB. Questioning by MEPs should possess two qualities: competence and European sensitivity. So far, this hasn't been the case.
The Wrong Questions
An analysis of parliamentary hearings from 1999 to 2019 (Ferrara et al. 2022) shows that parliamentarians failed to focus on the ECB's primary task — protecting monetary stability — and that their questions were verged on the economic predicament of their home country, not of the EU as a whole.
The study reconstructed the "voice" of EU politicians on accountability by examining the ECB hearings before MEPs in the so-called quarterly Monetary Dialogues. The study is relevant for several reasons. First, as a supranational central bank, the ECB's performance is subject to scrutiny by politicians whose preferences vary not only according to political affiliation but also by country of origin. Therefore, not only ideology, but also the temporal dimension, as well as geography, may be relevant.
Furthermore, the ECB has an institutional mandate that identifies price stability as the primary objective, subordinating the pursuit of other macroeconomic goals to it. These characteristics of the Frankfurt central bank's governance structure allow us to clearly assess whether politicians, in their interventions, emphasize the primary objective or secondary objectives. Quantitative analysis of the texts reveals at least two interesting and original findings.
How Politicians View the ECB's Role
First, it demonstrates that how European parliamentarians look at the ECB's responsibilities are not consistent with its institutional mandate. Specifically, it emerges that members of the European Parliament do not always hold the Central Bank accountable for achieving the primary objective of price stability. At the same time, the same politicians appear convinced that the ECB is responsible for macroeconomic trends other than inflation. In other words, the request for explanations and justifications is not expressed with respect to what should be the primary compass of monetary policy action, which — it is important to remember — is the cornerstone of a central bank's independence.
Indeed, both economic analysis and history have shown that a necessary, though not sufficient, condition for effective monetary policy is that it be managed by a technical bureaucracy — the central bank — which is separate from incumbent governments. Otherwise, the risk is that "money printing" will be used shortsightedly by politicians in charge for ideological and/or electoral reasons, ultimately resulting in poor macroeconomic performance.
Secondly, it emerges that, during the period under review, the driving force behind the questions of MEPs was the unemployment differential in their constituencies. In other words, the higher the unemployment rate, the less attention was given to price stability by individual MEPs.
Questions Dictated by Electoral Convenience
In short: European politicians exhibit skewed behavior, holding the ECB to account for its actions not in accordance with its institutional mandate, but rather following the dictates of their own electoral convenience. It will be interesting to see whether the recent inflationary surge that has affected the Eurozone will be considered by Brussels politicians through the filters of ideological and territorial particularisms, or whether there will be a qualitative leap in their macroeconomic competence. As EU citizens, we must hope so.
