12 January 2017
The political independence of the ECB is instrumental to its primary objective of maintaining price stability. It is a cornerstone of the euro area’s monetary system.
Central banks have not always been independent, but over time there has been a clear trend towards separating monetary policy from direct political influence. Extensive empirical evidence and theoretical analyses have shown that independent central banks are better capable of maintaining low inflation rates.
As guardians of price stability, central banks create the foundation for a healthy and stable economy. If governments had direct control over central banks, politicians could be tempted to change interest rates in their favour to create short-term economic booms or use central bank money to finance popular policy measures. This would seriously harm the economy in the long term.
To ensure the ECB acts in the best interest of the European people, it has been set up specifically as an independent institution. The Treaty on the Functioning of the EU gives the ECB the very clear and limited mandate to maintain price stability in the euro area. This way, the ECB is able to pursue a monetary policy that fosters economic growth and job creation in Europe.
The institutional framework for the single monetary policy shields the ECB from all types of political influence. The independence of the ECB consists of five main pillars which are reflected in the Statute of the European System of Central Banks and the Treaty on the Functioning of the EU.
The Treaty states that the ECB must not seek or take instruction from any institution, government or other body. At the same time, Member State governments and other EU institutions are not allowed to influence the decision-making bodies of the ECB.
The Statute protects the personal independence of the ECB’s Executive Board members. They are appointed for a non-renewable term of eight years and can only be removed from office in case of serious misconduct. This allows them to make responsible and objective decisions.
Through the Statute, the ECB is assigned all necessary competencies to achieve its primary objective of price stability. To this end, the Eurosystem enjoys exclusive competence for monetary policy in the euro area. In addition, the ECB is prohibited from lending directly to the public sector. This shields it from pressure from public authorities.
To further limit external influence on the Eurosystem, the ECB and the national central banks have their own financial resources and income. The Statute allows the ECB to organise its internal structure as it sees fit. This autonomy makes it possible for the Eurosystem to pursue all its tasks as required.
Finally, the ECB enjoys its own legal personality. This enables it to bring actions before the European Court of Justice to enforce its independence if necessary.
Accountability is a necessary complement to central bank independence. Therefore, the ECB explains its decisions and underlying reasoning to EU citizens and their elected representatives. Among other things, the ECB’s President attends quarterly hearings at the European Parliament’s Committee on Economic and Monetary Affairs. Members of the European Parliament can also address written questions to the ECB.
Overall, the five pillars of independence allow the ECB to conduct monetary policy autonomously and efficiently. At the same time, a comprehensive framework ensures the ECB’s accountability. This enables the ECB to pursue its primary objective of price stability and act in the best interests of the euro area’s citizens and the European economy.