Wednesday, November 14, 2012

ECB Governance

Sebastian Mallaby faults the governance structure of the ECB--one member, one vote. Germany, he argues, originally saw the ECB as an extension of the Bundesbank and an instrument for promoting its own economic views. But he believes that German influence has been overwhelmed by the sheer number of opponents.

There is some truth in this, but the argument is overstated. Throughout its history, the ECB has for the most part acted in consonance with German views. Its charter limits its freedom of action, its staff, drawn from national finance ministries, is dominated by Germans, and its directors have always had to pass muster with German vettors, even if they have on occasion demonstrated a certain independence, which is only to be expected.

Still, it is true, as Mallaby also indicates, that the crisis has introduced new tensions into the relationship between Germany and the ECB. But where has the crisis not introduced new tensions? And perhaps these tensions are productive, in that German views about economic management need to evolve if the dilemmas that Mallaby evokes are to be overcome.

4 comments:

Mitch Guthman said...

I have no idea what Mallaby is talking about. He seems to be living in a different universe than the one I inhabit. I think I’ve been a fairly close observer of events during the euro crisis or the fiscal crisis and I’ve done seen even the tiniest sliver of daylight between the ECB and the Bundesbank. None. Certainly I’ve seen nothing to indicate the the financial crises would be solved by giving Germany even greater control over Europe’s central bank.

Art Goldhammer said...

Mitch, you had one German resign from the ECB board and another, Weidmann, the lone holdout against Draghi's OMT policy. There are definitely differences between the ECB position and the Bundesbank position.

Mitch Guthman said...

Art,

Nevertheless, on the main question of imposing austerity in the middle of a recession the differences are no more than gossamer, at most. On the whole, Draghi has accepted German direction and has won almost universal approval at the Bundesbank.

I still don’t see that the euro crises was caused by insufficient German influence over ECB policy. My thinking is that Europe has been the victim of too much influence by Germany on ECB policy. In any case, as you yourself point out, the ECB is dominated by Germans and they vet directors the way the ayatollahs screen candidates for election in Iran.

Mallaby’s piece itself highlights the irremediable tension between democracy and the euro project. If there is a flaw in the way the bank is organized, it is one which exactly mirrors the flaws in the common currency. Democracy is under attack everywhere in Europe, now apparently even in the composition of the ECB’s board of directors. It is, after all, Europe’s central bank, not Germany’s

Anonymous said...

"Democracy is under attack everywhere in Europe". Spot on phrase Mitch and one which can't be repeated enough - in all its nuances. We face a seminal moment in Western Europe.