On Eichengreen’s “Democratizing the ECB”

I was procrastinating by closing some of the open tabs in my browser when I got to Barry Eichengreen’s January 14th piece for Project Syndicate, “Democratizing the ECB” — it’s short, and relevant to some of what I’m working on, so I finally read it.

His key argument (it is a very short piece! I shouldn’t have waited close to a month!) is that the ECB should increase transparency by releasing governing council members’ votes, as central banks like the Fed, the Sveriges Rijksbank, and others, do. The key argument against releasing this data, he argues, is that it could force nationally appointed council members to vote more narrowly on national (contra supranational) interest; he also argues that this worry is overblown, since:

“Such cynicism underestimates Europe’s central bankers. They may have made mistakes, but they have not shown a readiness to bend to popular opinion in order to retain their jobs. As important as their vote, moreover, is their ability to convince their colleagues of the validity and integrity of their arguments. Blindly obedient central bankers who lack this integrity will be unable to persuade their colleagues. They will find themselves isolated and consistently in the minority.” (Eichengreen, 2020)

Is it true that they will find themselves isolated and in the minority? Monetary hawks on the council have tended to come from European countries that suffered least during the Eurozone crisis, and it’s telling that when they no longer prevail in ECB decision-making, they seem to lash out in different ways.

Sabine Lautenschläger, the former German representative on the ECB’s governing council resigned last fall in protest of overly loose monetary policy decisions under Mario Draghi; her action followed her strong vocal opposition, alongside council members from Austra, the Netherlands, and France two weeks prior. Nor was she the first German council member, and monetary official, to resign from either the ECB or the Bundesbank in protest of European decisions (Jürgen Stark and Axel Weber did so in 2011). German newspapers dubbed Draghi ‘Count Draghila’, complete with pictures of the former head sporting fangs and a vampire cape, with splashy headlines about how he wanted to suck German savers’ accounts dry. And Hans-Werner Sinn now gets to complain that the ECB is no-longer independent. (Though he’s been doing so since July, and who didn’t see that coming.)

Time will tell how being in the minority affects core EMU members’ attitudes about policy, and their willingness to tolerate and abide the new ECB head Christine Laguarde’s changes. And it’s far from obvious how loosening monetary policy across the EMU — let along fiscal policy! — is even against German interests vis-à-vis growth. I’m curious about how accurate Eichengreen’s predictions are.

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