The “European project” — the continent’s gradual evolution toward greater integration — took a giant step forward this month with the launch of the euro. The single currency is a bold initiative, but it is merely the latest manifestation of a time-tested European strategy: Economic integration has long been the horse before the cart of European politics. But the advent of the euro and the birth of the European Central Bank have exposed a critical shortcoming in Europe’s march toward unity. Policies have become more unified, but the EU’s political institutions have not become more democratic. Decision-making continues to be opaque, and key European institutions remain shielded from popular scrutiny. This democratic deficit, if not remedied, threatens the success of the entire European project.
In recent weeks, celebrations over the successful launch of the euro have obscured the debate that has raged over the ECB. But questions concerning the new bank’s independence must be answered. The bank is modeled after the mighty German Bundesbank, whose commitment to monetary stability was unquestioned. The Maastricht Treaty that set up the ECB and the subsequent legislation that filled in the details gave the ECB two missions: keeping inflation under 2 percent and keeping fiscal deficits small. To accomplish those objectives, the bank’s enabling legislation says that it “must not take or seek instructions” from national governments.
That sort of independence does not sit well with the French government, nor with factions in the German left that have claimed important Cabinet portfolios. While those politicians do not quarrel with independence per se, they want the bank to include other priorities in its decision making. Unemployment rates tend to top their concerns, but they also have concerns about the value of the euro.
Europe’s new central bankers see themselves as fending off the encroachments of politicians quick to discard the straitjacket of fiscal and monetary discipline. The concern is real, but it can be taken too far. Keeping a distance from the prevailing political winds is one thing, but the ECB has been reluctant to publish its inflation targets or the minutes and voting records of its meetings. Top officials are reluctant to go before the various regional and national parliaments. Independence is one thing, excessive secrecy is another.
Europe’s politicians frame the problem in different terms. Their demand to have more say in ECB policies is, for them, nothing more than routine democratic oversight. After all, unlike the central bankers, the politicians can claim a democratic mandate. It is an argument that must not be dismissed.
The bankers in Frankfurt should take to heart the recent fiasco involving the European Commission. Last year, a low-level bureaucrat alleged fraud and mismanagement in the commission. The commission’s president, Mr. Jacques Santer, took the matter too lightly: The whistle-blower was suspended and the charges largely dismissed. The denials of the ministers involved were arrogant at best.
Outraged, the members of the European Parliament threatened to dismiss the entire commission. This “nuclear option” would have paralyzed the EU’s senior decision-making apparatus for months. For that reason, and because of other political concerns, it was unlikely to pass. A last-minute compromise was reached. The motion to sack the entire commission was replaced by one calling for an independent inquiry into the allegations that started the entire spectacle.
It is tempting to call the vote a victory for the status quo. It is anything but. This is the end of an era: The commission can no longer afford to treat the European Parliament with disdain. The bureaucrats in Brussels have been reminded that they too are subject to oversight. That in turn means that European parliamentarians are going to have to take their jobs considerably more seriously than they have in the past.
The lessons for Europe’s new central bankers seem clear. First, independence has its limits. Bureaucratic redoubts are crumbling, and Europeans are not going to tolerate any institution that is too far from the people. Second, ECB officials would do well to remember that the Bundesbank was strong because it enjoyed popular support; it did not enjoy popular support because it was strong. Germans believed in the bank and its mission, and that was because its leaders took their case to the public and won them over. The ECB’s best protection against encroachment by politicians is popular support. That, more than anything else, will ensure the success of the ECB and the European project.
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